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  • It was a fourth day of gains in a row for the S&P 500 and another strong day for Wall Street.
  • The S&P 500 rallied throughout the session to hit and closed at all-time record highs.
  • Stimulus hopes, good pandemic news, strong data and strong earnings are all helping support the rally.

It was a fourth day of gains in a row for the S&P 500 and another strong day for Wall Street; the S&P 500 rallied throughout the session, with the gains accelerating into the close where the major US index hit and closed at all-time record highs in the 3870s, up 1.1% on the day. The Nasdaq 100 saw gains of 1.2% and also closed at all-time high levels (though just missed out on setting an intra-day all-time high). The Dow was up 1.1% and the VIX dropped below 22.00.

The small-cap Russell 2000 index outperformed its larger-cap peers, gaining 2% and also hitting an all-time high. All sectors performed well, with outperformance seen in financials on account of rising US government bond yields and a steepening of the treasury curve.

Bullish undertones

Risk appetite has been well supported given a number of bullish market undertones;

1) News flow coming from Congress continues to suggest that more US fiscal stimulus, and another hefty dose at that, is on the way. This ought to boost economic activity in the US (and the world via increased import demand), which ought to boost fuel consumption.

2) Data out of the US this week suggests that economic activity in the US held up better than expected in January. Strong ISM PMI reports, a strong ADP National Employment report and Thursday’s strong weekly jobless claims data all beat expectations; all point to a strong NFP number on Friday.

3) Pandemic news flow this week has largely been upbeat and last week’s concerns regarding vaccine distribution delays is in the rear-view mirror. Positive data on vaccine efficacy has instilled greater levels of confidence that vaccines will work, vaccination efforts in major economies have accelerated and infection rates in most countries appear to have peaked. Crucially, ahead of Lunar New Year holidays next week, China appears to have gotten a mini Covid-19 outbreak under control.

4) Earnings continue to beat expectations; Refinitiv released data on Wednesday suggesting that US companies are on track to post earnings growth in Q4 2020, in defiance of expectations for earnings to have dropped 10%. Just on Thursday, eBay (+5.3%) and PayPal (+7.4%) both beat expectations, as the pandemic continues to drive outsized gains for online retailers. According to analysts at Reuters, upbeat fourth-quarter results will bolster expectations for a strong rebound in earnings in 2021 and help to ease investor worries that valuations are overstretched.