The Markets – as of Market Close January 29, 2021

The very end of the month experienced a new type of market risk due to coordinated stock purchases synchronized through social media. These activities reveal the effect of retail investors acting together online and agreeing to buy certain stocks. This can create extreme volatility in certain equities and sectors. This had an extreme positive effect on certain holdings, while options against the stock suffered great losses.  This is a speculative form of investing and not something that should be embraced by a long-term investor with defined goals and a financial plan. For most individuals, by the time you identify the opportunity, it is in a risk category well outside your normal tolerance. Ultimately, due to the market reaction to this trading activity, the month closed on a sour note with stocks in each of the benchmark indexes losing value on the last trading day of the month.

Prior to the last week, stocks were able to weather the storm of events that occurred throughout January, despite the fact that these things provided investors numerous reasons to move away from equities. January began on a somewhat positive note as the availability of COVID vaccines increased throughout the country. Nevertheless, investors were concerned as the number of reported virus cases continued to increase.

Despite numerous challenges, the certification of the 2020 presidential election was to take place on January 6. However, protestors sieged the United States Capitol, disrupting the certification process and forcing members of Congress to shelter. Following a restoration of order, Congress ultimately certified the results of the election.

On January 13, the House of Representatives voted to impeach President Donald Trump a second time, charging him with “incitement of insurrection” against the United States government, alleging that he incited the storming of the Capitol. The inauguration of President Joe Biden ultimately took place, as scheduled, on January 20. However, the event was held amidst a period of extreme political and civil unrest, concerns over the escalation of COVID-19 cases, increased restrictions in response to the pandemic, increasing unemployment, and curtailed economic recovery.

By the end of the month, the economic news was quite good. The fourth-quarter gross domestic product grew at an annualized rate of 4.0% despite low job growth, and the number of individuals receiving unemployment benefits exceeded 4.7 million. The Federal Reserve continued its accommodative measures and warned that the economy is still struggling from the effects of the pandemic.

Stocks ended the month with mixed returns. The large caps of the Dow and the S&P 500 lost value, and the Global Dow fell less than 1.0%. On the other hand, the Nasdaq finished ahead but trailed the small caps of the Russell 2000, which gained 5.0% over its December 2020 closing value. The majority of the market sectors finished ahead, led by energy, which gained nearly 7.0% for the month. Consumer staples and industrials lagged while the price of crude oil increased by more than 7.5%. The dollar climbed nearly 1.0%, while gold fell 2.4%.