To say that it has been hard to keep this market down would be an understatement. Hear what more Mary Ann has to say in this month’s video market update.
February Stock Market Update Transcript
Hello. I’m Mary Ann Drucker here with our video market update for February 2021. To say that it has been hard to keep this market down would be an understatement. Despite all that 2020 threw at investors, the S&P 500 still managed to end the year up in the double digits. The equity markets have been like a prizefighter bouncing back up after getting knocked down. As we entered the new year, the blows to the equity markets kept coming one right after the other. In January, we saw a shift in the balance of power in the U.S. Senate, riots ravaged the U.S. Capitol, the second impeachment of President Trump, and new variants of COVID-19 emerged. All of these events would have been enough to deliver the knockout blow, yet the markets remained unfazed.
Coming into the last week of January, the S&P 500 was up over 3% during the month to a new record. Then a war broke out. Using GameStop stock assets’ arsenal, an army of retail traders waged a coordinated attack against the mighty hedge funds of Wall Street. The reasons for this uprising are up for debate, but it was enough to spook the markets. In the final week of January, the S&P 500 gave back all that it had gained in the previous three weeks. GameStop stock rose dramatically from under $20 per share at the end of December to as high as $483 by the end of January. This riled the financial markets as hedge funds that had bet against the stock were forced to sell liquid long positions in order to shore up their portfolios.
By betting against the stock, hedge funds incurred immense losses in January as GameStop rose dramatically amid the buying spree by Reddit users armed with the power of social media. Then worries mounted whether this trading mania would spill over into other stocks favored as short positions by the hedge funds. Just to give you a perspective of the dramatic rise in GameStop shares, here’s a chart that compares GameStop to other popular investment themes such as Bitcoin and big technology.
Amid all the noise in January, FSA continued to monitor shifts in the markets. With international equity showing strength, we initiated a position in the conservative growth, core equity, and income and growth strategies. Most Tactical Growth strategies already had exposure to international equities coming into the new year, but we added it where appropriate. We will be looking for the pendulum to swing more decisively from a U.S.-centric focus to a broad international stance before we add to these foreign funds. It remains to be seen whether this will be the year that the U.S. equity markets finally pass the baton to their foreign cousins.
Finally, with tax season around the corner, we encourage you to reach out to your advisor if there are any changes that might impact your goals or how we manage your money.
Well, that’s it for this video market update. If you have any questions or comments about its content, please don’t hesitate to call or email us. Until next time, thank you for watching.