Today’s one of those days that’s kind of a “transition day,” if you will. It’s the unofficial kickoff of earnings season before the official one tomorrow, and everyone’s waiting for President-elect Joe Biden’s economic speech.

With so much waiting in the wings, it’s likely the market will trade like it has the last few days, without much conviction. The good news is that the unofficial earnings kickoff with Delta Air Lines (NYSE:) and BlackRock (NYSE:) got us off to a good start.

DAL shares crept higher in pre-market trading not because its results looked all that great, necessarily, but because the company seems to be doing a decent job managing through this challenging situation. It halved the amount of cash it’s burning through each day even as it operates with revenue down 65% from a year earlier. All the airlines are still works in progress for now, and DAL said 2020 was the toughest year in its history. It also said it expects to have more access to capital and return to profitability in 2021.

Financials were another sector that suffered last year but seem to generally be in better shape now. Asset manager BLK shares bounced this morning before the bell as the company reported better than expected assets under management and a higher than expected quarterly profit. BLK’s results—which partially reflect lively financial markets in Q4—could bode well for some of the big banks that report tomorrow and next week. It looks like the rest of the FInancial sector might be getting some early spillover support from BLK’s nice quarter.

Later today, keep an eye out for Fed Chairman Jerome Powell, who’s scheduled to appear at a livestream event at 12:30 p.m. ET. It’s unclear exactly what might come up for discussion, but it’s always possible he could say something market moving.

The market didn’t move much on this morning’s disappointing weekly data, which rose to a five-month high of 965,000. This stubborn indicator just refuses to come down, speaking to more suffering around the economy. It’s been mostly around 800,000 recently, so we’ll soon find out if today’s data is a one-time piece of bad news or something even worse.

Impeachment Appears To Leave Wall Street Unfazed

Stocks bounced around Wednesday with attention diverted toward impeachment for the second time in a little over a year. The swirl of events in Washington over the last week—including the impeachment vote—could raise uncertainty levels on Wall Street, which is never a good thing for the market.

At the same time, there’s a different dynamic playing out this time vs. when the same thing happened in late 2019 and early 2020. Today, the market is balancing what impeachment might mean even as a new administration is coming in and raising hopes for fresh stimulus. The stock market generally moved higher a year ago when the first impeachment was underway before being kneecapped by the arrival of COVID-19. Stocks also did relatively well back in 1998-99 when Congress was impeaching President Bill Clinton.

Generally, it feels like everything is on pause for the moment at the cusp of earnings season and inauguration. Having next Monday as a holiday just adds to the sense that big moves aren’t likely. Volatility has swung back and forth in a pretty small range since a quick climb to start the week.

Once earnings begin in a major way and the new president is inaugurated—and after impeachment is resolved one way or another—it might get Wall Street back to a more normal sense of rhythm. That is, if anything could be considered normal when the pandemic continues to sink its claws into the economy and peoples’ lives.

Start Making Sense

Sometimes things get out of sync on Wall Street, but other times they click along like clockwork. Wednesday was kind of a clockwork day, meaning some of the closely watched metrics behaved the way you might expect them to.

For instance, pulled back and so did small-cap stocks, while Tech stocks rallied. This is what you might expect, because rising yields tend to help small-caps by reflecting expectations of a stronger domestic economy. Tech stocks had been playing defense earlier this week as yields rose and had investors worried about earnings being squeezed by higher interest rates, but found buyers Wednesday on a day when the 10-year yield fell to 1.09%. It had peaked near a 10-month high of close to 1.19% earlier in the week.

The drop in yields also made sense if you consider the mild inflation data released early Wednesday. Core consumer prices rose just 0.1% in December, which was below some analysts’ expectations. Year-over-year core prices were up 1.2% for the third-straight month. Not only is that well below the Fed’s 2% goal, it’s also a level that pretty much squelched a lot of the inflation talk that was circulating around the market earlier in the week and helping spike Treasury yields.

Obviously that doesn’t mean the yield rally is over and it’s clear sailing ahead on inflation worries. Some investors think yields might get a lift over the coming month or two as the new administration settles in and starts legislating. President-elect Joe Biden is expected to present his economic stimulus plan today and many investors will look closely to see how much money they’re talking. Some estimates ahead of the announcement were as high as $2 trillion.

If any of this money is directed into infrastructure programs or direct payments to people who are struggling, that could have a multiplier effect that helps stimulate growth but also could stimulate a bit of inflation. The Fed meeting later this month could provide investors a chance to get monetary policy makers’ viewpoint on how inflationary the plan might be, but there’s no indication that the Fed has any thoughts of pulling back its own stimulus anytime in the shorter term.

There’s more talk among economists that the Fed could start tapering the bond-buying aspect of its program perhaps by early next year if the pandemic situation is a lot better by then. The Fed has also promised to give plenty of notice long before it starts tapering, probably an attempt on its part to avoid a market “taper tantrum” like we saw back in 2013.

Major indices may be hitting the “pause” button in the long rally this week, but remain just below all-time highs. The FAANGs, including Apple (NASDAQ:), Amazon (NASDAQ:), and Netflix (NASDAQ:) rebounded Wednesday after getting sent to the woodshed earlier this week. Many of these Tech and Communications firms are approaching their earnings dates, meaning enthusiasm could be building as investors anticipate results. A strong initial read on Christmas sales from Target (NYSE:) this week could be raising expectations ahead of AMZN and AAPL, both of which have heavy consumer exposure. More on consumer activity below.

Speaking of Tech, Intel (NASDAQ:) shares got a big boost yesterday when its CEO announced plans to step down. Many investors have gotten frustrated with the chip company amid production issues, and sometimes new leadership can provide fresh perspective and new ideas of how to run things. Despite that, underlying problems don’t go away just because a new person moves into the corner office. Boeing (NYSE:) replaced its CEO midway through the 737 MAX crisis, but the stock still hasn’t come close to recovering all its losses.

It might help in this case that INTC’s incoming CEO Pat Gelsinger is a company veteran known for his technical knowledge. It would probably be a lot harder for someone without experience at INTC to quickly get a handle on the specific issues INTC faces.

DXY And Crude Oil.

CHART OF THE DAY: DOLLAR’S DECLINE GIVES CRUDE AN ASSIST. This three month chart of the ($DXY—candlestick) vs. crude (/CL—purple line) shows how softness in the dollar has coincided with a sharp rally for crude. This is something that’s common, but the question is whether this crude rally has any momentum left now that the dollar seems to be bouncing off its nearly three-year lows posted earlier this month. Data Sources: CME Group (NASDAQ:), ICE (NYSE:). Chart source: The thinkorswim® platform from TD Ameritrade (NASDAQ:). For illustrative purposes only. Past performance does not guarantee future results.

Flagging Sales Seen: November was a humbling month for U.S. retail sales, and December seems to promise more of the same. At least that’s what you’d expect from checking analysts’ expectations ahead of Friday’s report. The average projection is for a decline of 0.2% in December, according to research firm Briefing.com. That follows a steep 1.1% dive in November and a 0.1% drop in October. The thinking appears to be that the new wave of pandemic shutdowns and the accompanying lack of hiring probably spooked shoppers in Q4. Still, one question is whether there could be anything positive in the report. For instance, the payrolls report last week had a very bad headline number, but looking underneath there was some good news because most of the job losses were in one sector—Leisure and hospitality. Not that it’s good when people lose their jobs, but the fact is jobs were created in other parts of the economy, just not enough to balance the ones lost.

Retail sales might be the same mix of sweet and sour if it shows only sectors like the ones we’d expect—specifically shutdown-affected ones including restaurants, department stores, and hotels—suffering declines. It’s going to be interesting to see how broad-based any losses might be. There’s also a new twist thanks to TGT reporting this week that comparable sales rose 17.2% in November and December. Online shopping played a big role, but people also came to TGT’s stores. Maybe Christmas season wasn’t as dim as some might have expected when they made those December retail sales estimates, but we’ll have part of the answer on Friday.

Flat Greenback: The dollar has kind of flattened over the last week not far above its spring 2018 lows. The Fed continues to pump money into the U.S. economy with its bond purchase program, a big reason for the dollar weakness. Ideas that the incoming Biden administration might launch a big stimulus also could be weighing on the greenback. This kind of dollar action can sometimes help multinational stocks by making their products cheaper overseas, and also can help emerging market economies that have borrowed in dollar-denominated debt. Studies show that emerging market stocks generally tend to do better during weak dollar periods, but there’s no guarantee that’s the case this time around.

Having said that, valuations of U.S. stocks are historically high, and the bond market still doesn’t offer much in the way of yield. This—combined with the weaker dollar—could conceivably pull more money into emerging and general overseas markets. It seems like almost every year you hear from some analysts why now is the time when overseas stocks will finally have momentum, but it just hasn’t happened over the last half a decade. Instead, domestic stocks have generally outperformed other big markets. We’re just two weeks in, but China’s main index was up 3.6% year to date through Wednesday.

2020 “Darlings” Update: Last year saw Wall Street dominated by “stay at homes” like Netflix, which reports next week, and fresher faces including Peloton (NASDAQ:) and Zoom (NASDAQ:). There’s been lots of talk about how these stocks could falter if vaccinations pick up and the economy starts returning to normal, so how are the “darlings” of 2020 doing so far in 2021? Well, PTON is up more than 10% year-to-date after yesterday’s sharp gains. The injection of strength Wednesday came after an analyst raised his target price, citing continued strong demand. The stock is now above last year’s highs. ZM obviously has a very different business than PTON, but they’re kind of joined at the hip in the mind of Wall Street because both were stay-at-home spear carriers last year. So far in 2021, ZM shares are up around 8%. Some investors apparently were impressed with the early returns on ZM’s business phone system this week, which analysts say is a sign that ZM offers more than just video conferencing.

As we’ve been saying, it’s important that these high-flyers prove to investors they can do a good job monetizing their offerings over the next year or two. Their respective leadership teams also need to map out plans so investors get a sense of how they’re going to manage everything from supply and demand logistics to new product introductions. All that said, once people get into new habits like exercising or conference calling at home, it can be sticky—meaning in a sense both companies have managed to sell the razor and now need to keep customers buying the blades.

Disclaimer: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.


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