Tim Hoyle, CFA, Chief Investment Officer
thoyle@haverfordquality.com

The coming week may shed some light onto several of the most important questions facing investors in 2021.

Click here to view additional insights on frequently asked client questions from the Haverford 2021 Annual Outlook.

Question 1: Will the Federal Open Market Committee change course in 2021?
We expect “no”, but Chairman Powell ‘s every word at Wednesday’s (27th) press conference will be parsed for insight into when the Fed will begin tapering its current round of quantitative easing. When the market begins to focus on this eventuality it will likely cause some anxiety.

Question 2: Will corporate earnings accelerate in 2021?
We will hear commentary from significant companies across many industries this week. Johnson & Johnson, Microsoft, Apple, AT&T, UnitedHealth, Comcast, Mastercard, Honeywell, and Chevron are just some of the companies we follow closely that report this week.

Exiting a recession is one of the only times that aggregate corporate earnings consistently exceeds expectations. Forecasts have been trending up, which is atypical for forward estimates. According to FactSet, S&P 500 2021 expected earnings currently stand at $168.19, off a low of $162 in August of 2020. We expect this week’s corporate earnings commentary to be, on the whole, positive and accretive to 2021 expected earnings.

Question 3: How did the U.S. economy weather the COVID-19 surge in the fourth quarter of 2020?
Q4 GDP data is due out on Thursday. Consensus calls for a 4.2% increase. GDP reports often receive more media attention than it warrants, since Wall Street views it as a look in the rearview mirror. But given that stimulus is still on Washington’s table, a very weak reading could bolster talks while a blow-out figure could take the winds out of stimulus’ sail.

Question 4: Is inflation trending higher?
In addition to the inflation readings associated with Thursday’s GDP release, PCE (a measure of inflation akin to CPI) will be released on Friday. Consensus calls for a 1.3% year-over-year increase in core inflation, while month-over-month it is expected to increase by 0.10%. We anticipate an uptick in inflation in the second half of 2021, one that will largely be ignored by the FOMC as transitory. Any early signs of increased inflation could change the market’s expectation on the all important question of when the Fed will change course.

Question 5: When will JNJ release phase III trial data on its Covid vaccine?
JNJ’s trial data is expected any day now. Almost everyone is optimistic the trial will yield positive results, the vaccine will be approved by the FDA in mid-February, and JNJ’s massive manufacturing capacity will be a game changer for vaccine distribution. JNJ’s product is expected to be a one-dose solution that is easier to transport, deliver, and administer.