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Topline

After closing at record highs Monday, the major stock-market indexes are taking a breather despite corporate earnings that continue to shatter Wall Street expectations, as the economic conditions underlying the bull market’s recent rally continue to rage on.

Key Facts

Shortly after the market open, the Dow Jones industrial average ticked down 125 points, or 0.4%, while the S&P 500 and the tech-heavy Nasdaq inched down about 0.2%.

Heading up gains in the S&P, shares of clothing-maker Hanesbrands are surging 8% after a quarterly report that beat analysts’ estimates for both revenue and earnings due in part to sales momentum in brands like Champion.

Gartner, meanwhile, is up nearly 5% after the research firm posted better-than-expected earnings of $1.59 per share, nearly twice as much as analysts were expecting thanks in large part to successful cost cuts. 

Media giant Fox is up nearly 2% after the firm also shattered Wall Street expectations, nabbing earnings per share of 6 cents in the fourth quarter (compared to a loss of 3 cents per share analysts were forecasting); record political advertising drove a 14% increase in overall ad revenue, which helped boost quarterly sales to $4.1 billion.

Cryptocurrencies are still skyrocketing following Tesla’s Monday announcement of a $1.5 billion investment in bitcoin, which is up 6% over the past 24 hours; ether, XRP and bitcoin cash are up about 2% each.

International stocks were largely mixed Tuesday, with Japan’s Nikkei 225 closing up 0.4%, while the United Kingdom’s FTSE 100 ticked down 0.1%, and Germany’s DAX Index fell 0.5%.

Crucial Quote 

“Equity markets got off to a fast start in 2021 as greed continues to overcome fear. As usual during such strong bull runs, investors and traders added leverage to their bets. Meanwhile, retail investors have been buying record amounts of call options and using margin debt aggressively,” Morgan Stanley analysts said in a note to clients Monday. “The prevailing view of better economic growth, more fiscal stimulus to come and continued money printing from the Federal Reserve has everyone all-in. When such periods occur, it’s rarely been easy or wise to get in the way; Instead, these trends typically need to run their course until they are derailed or simply exhausted.”

Key Background

The strength of corporate earnings has been driving the market, but experts are also warning that such bullish expectations could make the market ultra sensitive to negative developments. After a January jam-packed with strong corporate earnings and economic optimism stemming from President Joe Biden’s massive $1.9 trillion stimulus proposal, Bank of America analysts said in a note earlier this month that investors’ bullish expectations are the highest they’ve been since right before the Great Recession–after which stocks fell by 11% in one year. 

Chief Critic

“The stock market is as stretched as ever. Excess in company valuations are obvious, but now we are seeing extreme levels of margin borrowing and melt-ups in highly shorted or penny stocks. These are all signs of a market top,” says James McDonald, the CEO of Los Angeles-based Hercules Investments. “There are two big risks to the stock market currently: the spread of stronger and more contagious Covid-19 mutations and the possibility of waning government stimulus if the economy returns to normal faster than expected.”

What To Watch For

Cisco, Twitter and Lyft are among firms posting earnings after the close Tuesday. Consumer price index data for January is slated for Wednesday morning. 

Further Reading

Stimulus Check Debate Wears On As House Committees Begin Work On Biden’s $1.9 Trillion Plan—Here’s What To Expect (Forbes)

Dow Added Back 1,000 Points This Week As Reddit Mania Subsides And Democrats Move On Biden’s $1.9 Trillion Stimulus (Forbes)

Bitcoin Surges To An All Time High Of $48,000 As Tesla Signals Its Confidence (Forbes)