Interest rates at the long end of the yield curve have risen sharply and we anticipate they will head modestly higher over the next few quarters. The curve (2yr/10yr spread) has steepened from 82 basis points at the start of the year to 145 basis points. While the Fed will focus more on unemployment than inflation, and has pledged to keep short-term rates low, it has less influence over the long end of the yield curve. Bond investors at the long end of the yield curve are concerned inflation may spiral out of control, especially if Congress rolls out another massive spending plan. The rising long-term interest rates and steepening yield curve hold several implications for investors. One, higher rates raise valuations on equities, and this has caused the stock sell-off over the past few days. But the steeper yield curve also signals the U.S. economy may be rebounding sharply in a few months. And the wider spread between short-term and long-term bonds is beneficial for most of the Financial Services sector.

In early January, we wrote the following. "Don't look now, but interest rates at the long end of the curve are moving higher. With the whole curve historically low, does it really matter? Could it actually be bullish for certain sections of the stock market? Certainly not high-yield plays, but for those stocks that benefit from a faster growing economy? Remember those days? There are lots of questions but no definitive answers -- so watch price action to give us a clue.

We have highlighted (repeatedly) the current strong market breadth, even suggesting it might be too strong and in need of a reset. We've also talked about extremely overheated market sentiment, also in need of a nice reset as we see it.

A few weeks ago, we talked about the potential for a major U.S. Dollar Index (USD) bottom based on a number of technical factors. The greenback was close to major long-term chart support, the COT data (absolute and adjusted for open interest) was very favorable for the dollar, and the COT data for the euro (58% of the USD) was very unfavorable. Sentiment toward the dollar was also very poor while sentiment toward the euro was very bullish. Since then, the USD has bounced 2.3% -- so we have a start.

Stocks rose on Thursday, but gave up some of their midday gains, as investors weighed results from a range of major companies along with new employment and GDP data. The Labor Department reported that both first-time and continuing unemployment claims fell from the prior week, and came in below consensus forecasts. Meanwhile, the Commerce Department said that the U.S. economy expanded at a 4.0% rate in 4Q, slightly below the consensus forecast of 4.2%. For the full year, the economy contracted at a 3.5% annualized rate - the first full-year decline since 2009. On the earnings front, McDonald's posted disappointing 4Q sales and earnings, with international comp sales down 7.4%, reflecting the impact of coronavirus lockdowns in Europe. Tesla shares fell 3% after the automaker posted mixed fourth-quarter results and failed to provide specific sales guidance for 2021. The Dow rose 0.99%, the S&P 0.98%, and the Nasdaq 0.50%. Crude oil fell to $52 per barrel, while gold fell $4 to $1845 per ounce.

Capital One is a diversified financial-services holding company, primarily involved in credit card lending, auto lending, and commercial lending.

With earnings season now in full swing, the volume of weekly insider transactions reported by Vickers Stock Research has slowed and should remain slow for the better part of the next three weeks. Last week, Vickers processed some 898 transactions that meet the criteria for inclusion in this week's Weekly Insider Report, compared to 1720 at this time last month.

Stocks fell on Monday morning, giving up early gains amid concerns about congressional opposition to the Biden administration's $1.9 trillion stimulus plan and the impact of new coronavirus variants. Moderna shares rose more than 7% after the company said that it was developing a new version of its COVID-19 vaccine to better target a rapidly spreading South African variant of the disease. Meanwhile, Merck said that it would halt the development of its COVID vaccines after disappointing clinical trial data. The Dow fell 1.1%, the S&P 0.7%, and the Nasdaq 0.2%. Crude oil traded near $52 per barrel, while gold fell $4 to $1852 per ounce.

Stocks fluctuated on Thursday morning, a day after Wednesday's strong rally, as President Biden prepared to announce a new federal pandemic response strategy that will include an accelerated vaccine rollout. On Wednesday, Mr. Biden signed 17 executive orders reversing Trump administration policies in such areas as climate change, immigration, racial equality, and government accountability. On the employment front, the Labor Department reported that first-time claims for state unemployment benefits fell to 900,000 for the week ended January 16, down from a revised 926,000 a week earlier and below the Bloomberg consensus forecast of 935,000. The Dow fell 0.1%, the S&P rose 0.1%, and the Nasdaq rose 0.5%. Crude oil fell to $53 per barrel, while gold traded near $1863 per ounce.

Fourth-Quarter 2020 Summary & Market Outlook for 2021

Small- and mid-cap stocks (SMID stocks) surged in the past quarter. They also have outperformed large-caps over the past 12 months and may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be poised to rebound more quickly once COVID-19 vaccines are widely distributed and the economy recovers. As well, the prices of SMID stocks are generally lower than the prices of large-caps. While SMID stocks can be risky, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20%-25% of the U.S. stock market's capitalization is comprised of SMID stocks. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. We note that the Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

We saw some strange trading days in late 2020, and the majority of them had to do with the massive rotation that was happening at the time. But maybe we should start calling days like Thursday, January 14 more the norm than wacky. As we said recently, 2021 is starting out as the polar opposite of 2020 -- at least as far as the markets are concerned.

The stock market moved lower last week, as a Thursday afternoon selloff sent stocks into the red. Large-cap tech stocks were worse off than blue chips as investors digested Biden's stimulus plans and cabinet picks. During Friday's session, the Dow Jones Industrial Average fell 177 points, or 0.57%. The S&P 500 was down 0.72%, and the Nasdaq Composite was down 0.87%. For the week, the DJIA decreased 284 points, or 0.91%, the S&P 500 decreased 1.48%, and the Nasdaq Composite fell 1.54%.