Weekly Investment Update

The FOMC will hold their January meeting on Wednesday where they are largely expected to continue to communicate monetary support for the economy in the form of near-zero interest policy and a continuation of providing liquidity through asset purchases.

Two key pillars of the market recovery that began last March have been unprecedented levels of economic support from the Federal Reserve (monetary) and the US government (fiscal).

Investors will be closely monitoring the meeting for any sign of potential divergence from the previously-communicated supportive monetary policy stance. The expectation for an extended period of near-zero interest rates has significantly aided stock prices.

Large US companies like Apple, Microsoft, Facebook, and Visa will report earnings this week, and it is expected that they will continue to confirm healthy levels of sales and earnings growth.

Technology, e-commerce, and communications companies have been relative winners during the pandemic as people switched to doing more at home. Low interest rates and durable earnings growth have led investors to pay above-average prices for many of these companies.

Any sign of potential slowing of earnings growth could create significant market volatility as investors reprice their expectations for future profitability.

Q4 2020 US Gross Domestic Product will be released this week as well as the Conference Board’s index of Leading Economic Indicators. Both are expected to show continued recovery in economic growth following the pandemic-induced recession.

Like corporate earnings above, investors have been expecting a sustained economic recovery, so these reports will confirm whether that trend remains intact.

A slowing of economic growth, particularly for future growth implied by the Leading Economic Indicator index, may impact stock prices.