It’s another busy week of earnings, and U.S. stocks have made a solid start.

Earnings aside, the expectation that new stimulus will heat up the U.S. economy has sparked optimism. Treasury Secretary Janet Yellen said President Joe Biden’s $1.9 trillion relief plan could generate enough growth to restore full employment by next year. 

In further signs of optimism over the recovery, Brent crude futures
BRN00,
+1.72%

hit $60 per barrel on Monday for the first time in more than a year. The yield on the U.S. 10-year Treasury
TMUBMUSD10Y,
1.154%

rose to 1.20%.

The Reddit-fueled GameStop
GME,
-7.01%

frenzy appears to have cooled, after shares in the heavily shorted videogames retailer fell 78% last week having skyrocketed 1,737% over the previous three weeks.

In our call of the day, Deutsche Bank
DB,
+1.94%

strategists said the most shorted stocks have actually been outperforming since March last year, long before users on Reddit’s WallStreetBets forum took aim.

They said that while shorted stocks typically fare better during broad market rallies, the size of the current rally was “off-the-chart.”

Since the March market bottom, the most shorted stocks — defined as the top 10% of short interest as a percentage of market cap — have rallied by 245%, outperforming the Russell 3000 Index
RUA,
+0.46%

by 147 percentage points.


Compustat, Haver, Deutsche Bank Asset Allocation

Led by chief strategist Binky Chadha, they noted that half of that outperformance came before the November U.S. elections and positive vaccine developments.

They said the outperformance couldn’t be explained by the broad market or ‘everything rally,’ nor fully attributed to the retail buying trend, which has accelerated the outperformance since November.

“We see it reflecting the fact that short exposure has remained heavily concentrated in stocks with low profitability and growth, especially in pandemic-affected industries, even as the unfolding economic recovery has improved the prospects for these companies,” they said.

Despite the recovery beginning to unfold, shorts are still focused largely on pandemic-affected industries, they noted, adding that there was skepticism of a strong recovery. “Nine months after the shortest recession ended in our view, the consensus has persistently lagged the actual improvement in macro data.”

They also said that despite a third consecutive quarter of “enormous” record earnings beats for S&P 500 companies, the 2021 consensus has only crept slightly higher and sits well below its own forecasts.

The markets

The three major U.S. benchmark indexes
DJIA,
+0.43%

SPX,
+0.33%

NQ00,
+0.20%

made modest gains in early trading at the start of another busy week of earnings. European stocks also climbed, despite concerns over the spread of new variants of the coronavirus that causes COVID-19. Asian markets were largely higher overnight due to growing optimism over the global economic recovery.

The buzz

The price of Bitcoin
BTCUSD,
+11.63%

surged to $44,088, hitting a new all-time high after Tesla
TSLA,
+1.60%

said it has acquired $1.5 billion worth of the cryptocurrency in January could accept the digital asset for payment in the future.

Hyundai Motor Co.
005380,
-6.21%

said on Sunday that it is not in discussions with technology giant Apple
AAPL,
-0.21%

to develop an autonomous electric car, contrary to multiple reports.

Social-media platform Twitter
TWTR,
+1.93%

is set to record its second $1 billion–revenue quarter when it reports earnings on Tuesday, according to analysts polled by FactSet.

The Biden administration is set to announce this week that it will re-engage with the United Nations Human Rights Council, which then–President Donald Trump withdrew from almost three years ago, U.S. officials said on Sunday.

Apple chip supplier Dialog Semiconductor
DLG,
+16.04%

0OLN,
+16.83%

has been snapped up by Japan’s Renesas Electronics in a deal worth €4.9 billion ($5.9 billion).

The Tampa Bay Buccaneers dominated the Kansas City Chiefs as quarterback Tom Brady secured his seventh Super Bowl title and his first with a team other than the New England Patriots.

Random read

Why some scientists think all life started on Mars.

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