Monthly Market Update: 
Recap of January 2021

The first month of 2021 is behind us even though it seems as though 2020 is continuing to linger. The stock market for January had a bit of a jittery start as the virus continues to cause concerns, more fiscal stimulus is being discussed and a battle of individual investors versus hedge funds have taken over the news.


If this is your first time tuning in, I’m Eric Powell, the founder of RightPlan Financial and our millennial division, The Future Mill. Let’s first look at what the market returns were for January, then we’ll discuss what to expect the rest of the 1st quarter in the markets and at the end, I will do my best to sum up the battle between individual investors and Wall Street.

To start off, let’s look at the numbers. For December, the S&P 500 was -1.11%, the Dow Jones Industrial Average -2.04%, Nasdaq +1.42%, MSCI EAFE -1.09%, MSCI Emerging Markets +2.97%, Barclays US Aggregate Bond -0.72%, Barclays US Corporate High Yield +0.33% and Barclays Municipal +0.64%.

Unemployment numbers remained the same with a rate of 6.7% announced in January. This number reflects the virus impact we are still seeing, primarily on leisure and hospitality industries. Layoffs in these industries have been offset and allowed the unemployment rate to remain level due to an uptick of hiring in other industries.

For February, there are a couple key factors that will play a part in driving the market. The first is the continued discussion of fiscal policy with the new administration and the possibility of more stimulus. As new policies are discussed, the markets will reflect the perception on the possible economic impact, whether that be positive or negative. Fiscal stimulus has its advantages, though the possibility of inflation due to low interest rates and more money being produced is something to consider.

Second, as the virus continues, the new administration has plans to provide more vaccines which could help to get the economy operating in a more pre-Covid fashion. A control on the virus would provide an economic boost to industries who have been battered the past 10 months.

For those who decided to stay past the numbers, let’s look at what all the news headlines are about with investing. If you haven’t heard, there are a few stocks that have soared over the past few weeks. The primary two in focus have been GameStop, a retail game store that has not fared well in recent years and AMC, the movie theater company who has taken a drastic hit in revenue since the virus began. Thanks to a popular chat forum called Reddit, a group of individual investors took a liking to the stocks and saw that a hedge fund had shorted the stocks. When you short a stock, you buy, then immediately sell a stock, with borrowed money. Then the goal is to buy the stock back at a lower price then what you borrowed the stock at. Since the hedge funds sold the stock at a low price and tons of individual investors bought the stock raising the price instead of it going down, the hedge funds had to buy back into the stock to keep from losing more money. This raised the stock price even higher. When this occurs, it is known as a short squeeze.

These uncommon and highly risky strategies are not part of our investment strategy. Though you may here of someone who won big on the fun of the short squeeze, many will likely walk away with a loss. That said, our philosophy is to stick to your financial plan and your risk tolerance. If you have an interest in trading stocks, be sure to meet your financial plan goals first, then play.

For the remainder of 2021, well, I don’t even want to try to predict it. The past year and one month have been full of ups, downs and unexpected events. The best suggestion I have is to stay focused on your financial goals and to make sure your risk tolerance aligns with your portfolio.

If you have any questions or would like to take a look to make sure your portfolio aligns with your risk tolerance and goals, please reach out. Thank you for watching and stay safe.

Resources:

YCharts

AbcNews

GradientInvestments

Morningstar