Weekly Analyst Update — January 11

Wall Street climbs despite Washington chaos

• Unprecedented images were seen in Washington D.C. last week, as a group of Trump supporters stormed the Capitol Building.
• Although a brief dip occurred during the mayhem, this was overshadowed by the Democratic clean sweep in Senate elections, which is seen as a catalyst for more stimulus.
• On average, when the Democrats control the Presidency and both chambers, the S&P 500 returns around 9% on average over the course of the following year.
• Looking at the past year, The S&P’s 2020 reversal off the lows (-35%) has been the greatest ever, with a +16% return last year. Over the last two months, the index returned more than 10%.

Bitcoin powers past $40,000

• Bitcoin reached the $40,000 milestone last week, less than a month after hitting $20,000.
• The bull run is attributed to institutional investment and retail FOMO.
• Also, more of the circulating bitcoin supply is being held. Data from on-chain analysis firm glassnode recently reported that 78% of the circulating Bitcoin supply is held by ‘illiquid entities’ — a trend that has been increasing over the course of 2020.
• Over the weekend, however, Bitcoin corrected more than 10%.

Big Banks to kick off earnings season

• Several major banks will report their earnings over the next two weeks.
• Citigroup, JPMorgan Chase and Wells Fargo will release their earnings this Friday.
• Deutsche Banks cited Bank of America, to release earnings next Tuesday, as a top pick, as increased stimulus and spending will be good for US banks.
• Southern Europe banks have also performed well, with BCP (+16%) and Banco Sabadell (+15%) showing tremendous gains since January 1st.

Oil cracks $50

• Oil prices keep rising, as Saudi Arabia has unilaterally decided to lower its production by one million BPD, to bring it down to 8.25 million.
• The market knows that Saudis will adjust production as long as necessary to keep prices artificially high, even if some developed countries impose new lockdowns therefore lowering consumption.
• The boost by the additional Saudi cut opens the door to shale producers being profitable again, but clearly, this shows concern by the Saudis of the speed at which oil demand will recover.
• Previous estimates were that oil demand would not begin to recover until H2 2021, this will also be affected by vaccine distribution and how long any of these new restrictions last.

The Week Ahead

• Banks in Japan are closed today
• Fed Chair Jerome Powell to speak at a webinar hosted by Princeton University (Thursday)
• Earnings season begins with big banks (Friday)
• US Retail Sales data release (Friday)

Written by a team of experienced financial analysts at eToro.

This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.