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January 2021 in Review

Daniel Zeigler, CFP, CMFC, Portfolio Manager

 

Hi everyone, this is Dan Zeigler, Portfolio Manager at Midland Wealth Management. I wanted to provide everyone with a recap on the market for the month of January. 

Stock returns started the year off building to their gains from 2020. However, in the last week of January, we saw volatility pick up as the S&P had its worst performing week since October and was down 3.3% for the week. So far for the year, NASDAQ has made out with a small gain for the month of ~1.4% and the S&P 500 was negative 1%. 

Several factors may have led to the increased volatility for the last week of January. The initial estimate for GDP for 2020 contracted 3.5% in 2020, marking the largest annual decline since 1946. The 4th quarter GDP grew at an annual rate of 4%, however many economists are expecting very little growth for the 1st quarter with hopes of picking back up later in the year. The latest $1.9 trillion stimulus package seems to have lost momentum, which would certainty help GDP growth if passed. 

We did hear news on another promising vaccine from the long-awaited vaccine news from Johnson and Johnson – which looks likely to become the third U.S. COVID-19 vaccine to enter the market. The vaccine’s efficacy rate dropped from 72% in the U.S. to just 57% in South Africa, where a highly contagious variant is driving most cases and appears to be popping up in the U.S. The vaccine was extremely effective in preventing severe cases of COVID and it does only require one shot and storage conditions are much more favorable than Pfizer’s and Moderna’s.

The market has been fixated on the recent surge in a few heavily shorted individual stock names, such as GameStop and AMC Entertainment, as a mob of Reddit investors piled into these stocks. It created a short squeeze for large hedge funds that were shorting these companies. Most of these hedge funds that were shorting the stock had to buy-back the stocks at a much higher price and some of these hedge funds likely needed to shore up capital and sell some of their high quality stocks. 

4th quarter earnings results continued to improve as 82% of the companies are beating analyst estimates for earnings and 76% of companies are reporting better revenue than expected. U.S. companies are still expected to report an overall earnings decline of about 2.3% year-over-year. 

We all know markets don’t always go up in straight line and it is perfectly normal for markets to experience pullbacks from time to time. If you didn’t get a chance to listen to Midland’s Market Outlook webinar last week, be sure to check out the Wealth Management tab at Midlandsb.com under Market Outlook. It did a great job talking about the potential tax changes under the new administration, interest rates, and equity valuations. 
 

Midland Wealth Management is a trade name used by Midland States Bank, its subsidiary Midland Trust Company and its affiliate Midland Financial Advisors, an SEC registered investment advisory firm. Investments are not insured by the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank or any federal government agency, and are subject to risks, including the possible loss of principal.