Saving the Best for Last

By Alex Eule |  Friday, February 19 Saving Up. The news around Covid-19 is the best it has been in months, earnings are blowing past estimates, and Americans are about to get another infusion of economic relief. So why are investors suddenly so blasé? The S&P 500 finished the week down 0.7%, after falling all four days of the holiday-shortened week. Tech stocks are getting hit a bit harder, with the Nasdaq Composite finishing the week down 1.6%. The Dow Jones Industrial Average eked out a small weekly gain of 36 points, or 0.1%.   There are various potential reasons for the market's indifference: concerns about inflation, a post re-opening slowdown for the economy, and mixed news about vaccine efficacy. And while the worries are real, the latest data suggest that each one is surmountable.  The latest studies suggest Pfizer's vaccine is likely effective with just one dose. That could substantially cut the time it takes to return to normal. But the market, rightly or wrongly, has moved beyond the vaccine trade.   The same could be said about an earnings season when Corporate America has done far better than expected. With fourth-quarter reports nearly complete, 79% of companies in the S&P 500 have reported better-than-expected earnings. Earnings are likely to have risen 3.2% in the fourth quarter, according to FactSet. Less than two months ago, strategists were forecasting a 9% decline. Despite the good news, the S&P 500 is up a modest 2.4% since those earnings began rolling in.  Investors have decided that the post-Covid recovery got priced into stocks months ago. My optimistic side says that's too pessimistic. Jim Paulsen, chief investment strategist at Leuthold Group, sent around a note today titled "Demand in Waiting." He points out that personal savings as a percentage of GDP has reached a post-World War II high of 14%, well above the historical average of 7%. "The U.S. has been stockpiling future demand," Paulsen writes. He concedes that inflation remains a concern but is confident U.S. policy makers are keeping a careful watch on prices and ready to intervene if necessary. Here's more from Jim:  The question is not whether the economy will recover from the pandemic. It almost certainly will. ... The U.S. economy is not likely headed for just a “single year” of good growth, and then return to disappointing results. Rather, the Savings Boom has enhanced both the cyclical and secular economic outlooks. ... More than appreciated, the U.S. savings rate might be the key to the future character of the U.S. economy and the financial markets. A new secular trend of rising savings since 2008 and its explosion in the last year is perhaps the most dominating influence for economic prospects. There's still reason for optimism.  Watch our weekly TV show on Fox Business Friday at 9 p.m. or 10:30 p.m. ET; Saturday at 10 a.m. or 11:30 a.m.; or Sunday at 7 a.m., 10 a.m., or 11:30 a.m. This week, see more on what to watch for in Warren Buffett's annual letter. Plus, get insights on investing in space and on the surprising strength of corporate profits.

 

DJIA: +0.003% to 31,494.32 S&P 500: -0.19% to 3,906.71 Nasdaq: -0.07% to 13,874.46 The Hot Stock: Albemarle +10.4% The Biggest Loser: Hologic -8.1% Best Sector: Materials +1.8% Worst Sector: Utilities -1.5%