Broker Check

Market Commentary

February 16, 2021

 

Despite strong start, global markets
stumble late in January

Global stock markets picked up right where they left off 2020 posting strong gains to start January. Positive vaccine news and reopening optimism fueled the markets, despite mixed economic data, concerning COVID case levels across the globe, the horrific January 6 attack on the US Capitol the day of the presidential election certification, and the second impeachment of President Trump. 

The early gains were paced by small-caps and mid-caps, which caught fire the last three months of 2020, as well as the tech-heavy Nasdaq. Yet, large-caps and foreign markets posted nice gains as well to start the year. The Georgia senate special runoff gave the Democrats control of Senate, by the narrowest of margins. With the House and the Joe Biden Presidency, the Democrats pulled off at least a light-blue wave, which lifted positive market expectations of a new fiscal stimulus relief bill to follow the $900 billion stimulus plan signed by President Trump in late December. The $1.9 trillion plan was later announced the day of the inauguration by President Biden as the American Rescue Plan to provide more COVID relief and spur continued economic recovery.  The final package will first need to pass through Congress.  

Despite the strong gains to start 2021, the markets were unnerved with short-selling volatility sparked by GameStop, AMC Entertainment, and American Airlines, among others. Not only did large-caps and developed foreign markets give up their January gains, but they also finished in negative territory for the month. The Dow and S&P 500 slipped 2% and 1.1%, respectively in January. While small-caps, mid-caps and Nasdaq gave up some of their gains, they finished in positive territory. The Russell 2000 index gained 5%, while the mid-cap S&P 400 rose 1.5%, and Nasdaq finished up 1.4%.Overseas, the developed market benchmark MSCI EAFE index dipped 1.1%, while the MSCI Emerging Markets index finished up 3% to start the year, following a very strong 19.3% Q4 2020 gain.

Interest rates rose in January in anticipation of the new fiscal stimulus plan noted above. The 10-year Treasury note yield rose 0.18% to close at 1.11% and ended the month above 1.00% for the first time since the early days of the Coronavirus global pandemic and another sign of optimism. The rise in rates also meant losses for bond market to start the year. The Barclays Bloomberg Aggregate Bond index slipped 0.72% to start the year and US corporate bonds dipped further losing 1.28%.

January Quick Takes

  • Despite strong start US stocks mixed in January after late month volatility
  • Large-Caps slipped into negative territory to start the year, while small-caps, mid-caps and Nasdaq held on to gains
  • Developed foreign markets dipped in January but emerging markets gained
  • Expectations for a new $1.9 trillion fiscal stimulus plan rose following the Democrats’ light-blue wave and Joe Biden inauguration as the 46th president
  • Intermediate- and long-term Interest rates moved higher for the month


February Update

As the short-selling volatility subsided and eased concerns, global markets rallied to start February. Again, led by small-caps, mid-caps, and Nasdaq, US stocks pushed to new all-time highs. The small-cap Russell 2000 is up 10.4% in February and 15.9% YTD, while the mid-cap S&P 400 is up 8.7% and 10.2%, respectively ending 2-12-21, and reflecting cyclical economic recovery expectations. The large-cap Dow and S&P 500 have posted strong February returns as well and are back into positive territory for the year. Corporate earnings season is off to a good start, vaccine production and distribution have accelerated, and prospects for the new stimulus plan have risen. Foreign markets have rebounded as well, with emerging markets hitting new all-time highs as well.

Interest rates, intermediate and longer-term, have continued to rise with the 10-year Treasury Note yield closing the week ending 2-12-21, at 1.20% and the 30-year closing above 2.00% for the first time since last February. Yet, economic data continue to send mixed signals, with a disappointing job report and inflation expectations, while data remain subdued, are percolating. Fed Chair Powell has strongly maintained the Fed’s low interest rate/high accommodation policy guidance in recent comments.


The Outlook

2021 remains a year of transition on many fronts and we remain cautiously optimistic. The Presidential transition, while not smooth or free of violence, has concluded and is moving forward to focus on the new stimulus plan, vaccine distribution, and economic recovery.

  • Don’t get complacent with risk; maintain diversification and discipline
  • Refrain from chasing returns and making large portfolio changes
  • Valuations are stretched and a pullback would not be a surprise; volatility expected to increase again in Q1 though it has trended down from 2020 highs
  • Baring a setback, economic reopening remains more of a second half transition story coinciding with wider vaccine distribution; economic growth projections remain strong for 2021
  • Maintain regular contributions and a rebalancing program
  • Stay safe and healthy

We continue to encourage investors remain patient with the measured reopening process until the vaccine is effectively distributed, stay vigilant and keep your focus long-term.

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio, including 2020-2021 IRA contributions.  

 

~Your Nelson Securities Team   

 

*Past Performance is No Guarantee for Future Results