Global markets avoid chill of cold and ice across the United States

• Weather-related power outages temporarily limited US oil output, helping to push the US oil benchmark to over $60/barrel for the first time in over a year.
• International stocks largely shrugged off the setback, most major indexes pushing higher overnight in Asia while major European indexes are mixed at midday.

Japan’s Nikkei tops 30,000

• It’s the first time Japan’s headline index has seen that level in over 30 years.
• The Nikkei still has a ways to go to reach its all-time closing high of 38,915.87, achieved on December 29, 1989.

Bank loans may be an attractive income option for investors concerned with rising interest rates in a yield-starved world

• Bank loans are issued by below investment-grade companies and do carry credit risk but have low sensitivity to interest rates.
• An improving economy may create a supportive backdrop for credit-sensitive bond sectors.
• We still prefer stocks to bonds, but an allocation to bank loans may be a good fit for income-oriented investors.
• For more on our view of bank loans, see today’s LPL Research blog.

Earnings continue to impress

• With roughly three-quarters of S&P 500 Index constituents having reported results, S&P 500 earnings growth for fourth quarter 2020 is tracking to a nearly 3% year-over-year increase, roughly 12 percentage points above estimates on January 1.
• Sectors seeing the biggest upside surprises include communication services, consumer discretionary, and financials. Forward 12 months’ estimates have impressively increased about 4% year to date.

 Week ahead. The holiday-shortened week includes the following events:

• Tuesday—Empire Manufacturing (Jan.)
• Wednesday—Retail sales (Jan.), Producer Price Index (PPI)(Jan.), industrial production (Jan.), and National Association of Home Builders’ (NAHB) Housing Market Index (Feb.)
• Thursday—Weekly initial unemployment claims, and housing starts and building permits (Jan.).
• Friday—Existing home sales (Jan.) and Markit Purchasing Manager’s Index for both manufacturing and services (Feb.).
• More than 50 S&P 500 companies will report Q4 2020 results over the course of the week as earnings season winds down.

Technical update

Stocks are building on gains from last week, but more significant technical moves are happening outside of the equity markets. The 10-year Treasury yield has broken out above 1.2%, WTI crude prices traded through $60 for the first time in over a year, and on Friday the VIX Index closed below 20 for the first time since the COVID-19 bear market began.

COVID-19 news

• The US reported 55,000 new COVID-19 cases on Monday, although severe weather in the central US likely disrupted testing activity 2021 (source: COVID Tracking Project).
• The cumulative number of patients hospitalized with COVID-19 continues to decline, falling below 70,000 for the first time since early November.
• 7-day average of new cases has declined 65% from its peak on January 11.

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LPL Financial Research Chief Market Strategist Ryan Detrick illustrates how you can take any data and tell any story you want, but when you want to invest, you want to know what really matters. Watch the new Market Signals Podcast here!

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