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LGT Navigator: Wall Street dives as high valuation increases concerns, while Fed keeps its pledge

January 27, 2021

Fed Chairman Powell was more confident about the future economic development in the US, despite the still high risks. On Wall Street, however, share prices nevertheless came under pressure and some of the indices recorded their sharpest decline since October. The main concern seems that many investors are concerned that shares are generally highly valued following the recent record rally. A record result from Apple and a strong quarterly report from Facebook came too late to turn the sentiment.

Wall Street dives as high valuation increases concerns, while Fed keeps its pledge

After the recent record rally, many investors seem to want to get their sheep in the dry in view of the proud valuations. Thus, yesterday, the American stock market indices fell more sharply than at any time since last October. The Dow Jones Industrial slumped by -2.05% to 30'303.17 points and the market-wide S&P 500 fell by -2.52% to 3'750.77 points. Thus both indices show a negative balance since the beginning of the year again. The losses were strongest in the technology exchange Nasdaq. The Nasdaq 100 exited with a daily loss of -2.8% at 13'112.65 points and still notes a plus of almost +2% since the start of the year. The Nasdaq Composite lost -2.6%. No immediate impetus was provided by the strong, but only after market close published quarterly results of Apple and Facebook.

Apple reported a record profit of USD 28.7bn for the important Christmas quarter (+29.3% over the year) and exceeded the USD 100bn mark for the first time in quarterly sales (USD 111.4bn +21%), with all product lines contributing to growth. Facebook also saw strong revenue growth to USD 28.1bn in the final quarter of 2020 and reported a 53% surge in profits to USD 11.2bn. Facebook's user base also continued to grow.

Stock markets followed negative cues from overseas (Japan's Nikkei -1.5%, Hong Kong's Hang Seng -1.9% and China's CSI 300 -2.3%) and futures also point to a weak start to trading for Europe's equity markets.

Fed remains committed to expansionary stance, as risks remain elevated

In its first meeting of the new year, the Fed reaffirmed its longer-term extremely expansionary monetary policy stance. The key interest rate remains unchanged at 0.0-0.25%. The multi-billion dollar securities purchases will also continue. Currently, the Fed buys monthly government bonds for USD 80bn and mortgage-backed securities worth USD 40bn. This pace is to be continued, confirmed Fed Chairman Jerome Powell. The Fed remained cautious in its outlook. Although there were some positive signs, such as the start of the global Covid-19 vaccination campaigns, the economic recovery and the situation on the labor market had weakened again in the US in recent months. There are still major risks to the economic outlook, Fed Chairman Powell said.

Euro strength keeps ECB leaders' minds busy

The European Central Bank (ECB) has instruments at its disposal to combat a strong appreciation of the euro, according to Council member Klaas Knot. The Dutch central bank chief said in an interview with Bloomberg TV that the strength of the single currency in recent weeks and months is being watched “very carefully“ by the ECB. Earlier, ECB President Christine Lagarde as well as ECB Chief Economist Philip Lane had also expressed concern about the exchange rate development on several occasions and stressed that the development would be closely monitored.

Consumer climate in Germany and France is deteriorating

Consumer sentiment in the eurozone's two largest economies, Germany and France, deteriorated at the start of 2021 in the face of tighter corona restrictions. As reported by the GfK consumer research company, February consumer sentiment in Germany fell from minus 7.5 to minus 15.6 points. The recently decided extension of the hard lockdown has caused hopes of a speedy recovery in consumer sentiment to fade, GfK commented. In France, too, consumer sentiment is dampened against the backdrop of the corona pandemic. The index of the statistics office Insee fell by three points to 92 points in January. This means that the confidence observed at the end of 2020 that the outlook could improve noticeably thanks to the corona vaccinations seems to have evaporated.



Economic Indicators January 28

MEZ Country Indicator Last
10:00 IT Business Climate (January) 95.9
11:00 EZ Economic Sentiment (January) 90.4
11:00 EZ Business Climate (January) -0.41
14:00 GE Consumer Prices (January, Y/Y) -0.7%
14:30 US GDP Q4 (revision, annualized q/q) +33.4%
14:30 US Initial Jobless Claims (weekly) +900,000
16:00 US New Home Sales (December, m/m) -11.0%
16:00 US Leading Indicator (December, m/m) +0.6%

Earnings Calendar January 28

Country Corporate Period
UK Diageo Q4
US McDonald's Q4
US Mastercard Q4
US Visa Q4


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Source: LGT Bank (Switzerland) Ltd.

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