Stocks cooled off in the last week of January after a hot start to the year, leading to mixed results in equity markets.
The month seemed to start with a shift in investor preference, with a brief bump in value stocks (think: banks, energy, and companies that are “beat-up” relative to their fundamentals). However, the trends that have been firmly in place for the past year ultimately prevailed as tech stocks lead markets for the month.
Despite some volatility at the end of the month, global uncertainties seemed to decrease, sending the 10-year Treasury bond yield higher from 0.93% to 1.11% (higher yields typically represent a more positive investor sentiment).
On the COVID-19 vaccination front, the US has been averaging a little over 1 million doses per day as efforts to move past the pandemic have ramped up. Some experts are projecting “herd immunity” in the US in late summer 2021 (fingers crossed). The NFL announced it would be providing 7,500 free Super Bowl tickets for vaccinated healthcare workers to honor their continued extraordinary service throughout all of this.
Keep reading for more in-depth market insights as well as our pick for the Super Bowl!
As the world has continued to battle COVID-19, new strains of the virus have started to emerge in recent months.
The new “super strains” are said to have key gene changes that make them pass more easily from person to person (it is estimated to be 50% more contagious than the original coronavirus).
While this was an unfortunate turn in an already troubling year, there is a silver lining. Early research has shown the current vaccines being used prove effective against the new strains.
This was positive news as experts believe these new strains could account for a majority of COVID cases by March.
Robinhood, the popular trading app, received a large amount of scrutiny from its users as the company temporarily imposed strict limits on trading certain stocks. Specifically, on January 28, Robinhood restricted transactions for certain securities including GameStop (see next page for more details on this) to sell orders only.
Within hours, users of the app retaliated by filing a class-action lawsuit claiming the company was rigging the market against its customers. Later in the day, disgruntled users orchestrated a negative review campaign bringing the rating of the app down to 1-star (this has since been salvaged after almost 100,000 negative reviews were deleted).
Many wonder if this will impact the future direction of the company as Robinhood has been rumored to be exploring going public as early as this quarter.
What’s Hot and What’s Not?
So Hot Right Now
- GameStop – That’s right, the retailer best know for giving you store credits when trading in your old video games during the Mesozoic era has been on fire in January. How did this dinosaur make it back into the news? GameStop’s stock popped (say that three times fast) following an announcement that it added cofounder of e-commerce Chewy to its board (seen as a good move for future of the business). The initial price increase was so severe it caught the eye of many professional investors, who then opened short positions against the stocks (meaning they would profit if the stock price fell back down). However, many amateur investors banded together to jump into the stock, sending the price even higher. As this happened, it caused a short squeeze which drove the price even higher still! (A short squeeze is when a heavily shorted stock increases in price, forcing the short sellers to buy shares to cover their losses, thus resulting in more buying and higher prices). By the end of January, GameStop saw its stock price rise over a whopping 1,600%.
- AMC – Movie theaters are back! Or, at least they aren’t gone yet. AMC, America’s largest cinema chain, has been on the brink of failure since the COVID-19 pandemic began. Just as it seemed bankruptcy was inevitable, the company acquired $917 million in new financing through a blend of debt and equity to keep the lights on in the upcoming months. “Any talk of an imminent bankruptcy for AMC is completely off the table,” said the CEO Adam Aron. This news, combined with a wave of retail investor support, sent the stock soaring over 500% in January as investors speculated the company may be able to make it through to the other side of the pandemic. AMC is banking on pent-up demand and a high vaccination rate to help boost attendance this summer.
- Netflix – Unlike theaters, Netflix has been thriving in the coronaconomy as people have been staying home and binge watching their favorite shows. Shares of Netflix popped almost 17% immediately after the company announced quarterly earnings, where it mentioned it has over 200 million paid subscribers and it expects to become sustainably cash flow positive by next year (i.e. won’t need additional outside funding).
So Not Right Now
- Gold – Since reaching an all-time high of over $2,000 per ounce in August 2020, gold prices have been in a steady decline. Gold prices fell over 2% in January, bringing losses to (12)% from the highs of last year. As markets have continued to rally, investors have become increasingly risk-on, resulting in a lower demand for the safe-haven metal. Furthermore, with expectations of low inflation rates, investors aren’t seeing the need to hedge against this (gold is oftentimes used as a way to combat inflation for portfolios).
Broad Market Returns
| Index | 1 Month | 3 Month | YTD | 1 Year |
| S&P 500 (VOO) | -1.02% | 13.93% | -1.02% | 17.16% |
| NASDAQ (QQQ) | 0.26% | 16.98% | 0.26% | 44.64% |
| Large Cap Growth (VUG) | -1.01% | 13.80% | -1.01% | 34.61% |
| Large Cap Value (VTV) | -0.79% | 15.79% | -0.79% | 4.13% |
| Small Cap Growth (VBK) | 2.17% | 26.39% | 2.17% | 38.83% |
| Small Cap Value (VBR) | 2.04% | 27.96% | 2.04% | 11.83% |
| Developed International (VEA) | -0.72% | 19.86% | -0.72% | 12.29% |
| Emerging Markets (VWO) | 3.13% | 18.68% | 3.13% | 25.74% |
| REITs (VNQ) | 0.04% | 12.71% | 0.04% | -5.74% |
| Aggregate Bonds (BND) | -0.86% | 0.49% | -0.86% | 4.71% |
| Corporate Bonds (VCIT) | -0.88% | 1.67% | -0.88% | 6.16% |
| High Yield Bonds (JNK) | -0.50% | 5.22% | -0.50% | 4.91% |
| Long Term Treasuries (VGLT) | -3.52% | -3.20% | -3.52% | 5.73% |
| International Bonds (BNDX) | -0.63% | 0.11% | -0.63% | 2.06% |
Fun Facts of the Month!
- On February 7, Tom Brady and the Bucs will take on Patrick Mahomes and the Chiefs in Super Bowl LV. This will be the largest age gap between starting Super Bowl quarterbacks as Brady is Mahomes elder by 18 years, 1 month, and 14 days. A real History Channel vs Nick Jr matchup!
- This one is more of an opinion than a fact, but the Chiefs will beat the Bucs handily in the Super Bowl this month, 38-27 final score (we will check back on this in March).
- February was named after a purification ritual (“februum” = “purification” in latin), which was like an early Roman spring cleaning festival.
- In February 1964, The Beatles made their first American television appearance on the Ed Sullivan Show.
Derek Prusa, CFA, CFP® and Ben Webster, CFP®
Co-Founders and Owners of Aspire Wealth
