Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 5

Happy Monday and welcome to February!  

What a Week (And Month) in the Markets

Besides the drama of GameStop (more on that in a moment), January was a month of impeachment, inauguration, and market insanity. The market also suffered its worst weekly loss since October during the last week of the month. Despite all that, the overall stock market essentially finished unchanged to slightly lower for the month. Some parts of the market did well though, with small caps and emerging markets each up about 3% in January, for instance.  

The 3-month return for the market, basically since the Election, is a gain of about 16%.  During that time, small caps are up 29% and emerging markets up 21%.   

Since August 4th, when the 10-year Treasury yield bottomed, the U.S. market is up 19%, while small caps are up 39% and emerging markets are up 29%. 

And now for the fun numbers: Since March 24, when the stock market bottomed after the bear market nearly a year ago, the U.S. stock market is up 75%. Small caps are up 103% and emerging markets are up 81%. 

Now consider what will likely be the case (assuming the stock market doesn’t materially correct), how much the stock market’s trailing 1-year historical return will pop higher once the dramatic negative returns from last Feb/March’s bear market rolls off the returns. The 1-year return for the stock market will rank as one of the best ever. 

Let’s Talk GameStop

There has been a lot written about this already, but I believe the story is important because it’s a fascinating example of investor behavior, something that all of us as advisors—or investors—care about. As advisors, we have an incredible opportunity to do what we do best: Be counselors. 

There has been a tremendous swell of interest and new investors coming into the markets.  We have the opportunity to educate and hopefully nudge investor behavior in the right direction. As long-term investors, however, we realize this is a story we’ve heard before and it’s a game we don’t need to play.   

Looking Ahead

Regarding a market outlook, being cautiously optimistic and investing in diversified portfolios remains the best course of action in my opinion, as there are powerful arguments for being both bullish/optimistic (“Things Are Getting Better,” “Don’t Fight The Fed,” and “Don’t Fight The Tape”) and for being bearish/cautious (valuations show that stocks are expensive by historical standards, and investor sentiment is “too hot” in some cases, suggesting future below-average market returns). 

COVID data seems to be, on balance, improving.  While the news of a new strain(s) isn’t positive, the overall rate of cases, hospitalizations, and deaths is currently going down.  And there have now been over 27.3 million vaccinations given in the USA, with the daily average up to nearly 1.3 million doses, according to the CDC.

As for what to watch for this week, besides the price action of GME, the highlights include Big Tech earning reports with Alphabet (GOOG), Alibaba and Amazon on Tuesday.  On Friday, we get the monthly jobs report, arguably one of the most important, if not most important, economic numbers to watch given its potential impact on monetary and fiscal policy.  Expect to see a rebound in job growth after December’s poor number. 

It’s Super Bowl Week!

This year’s game is loaded with storylines and has a great cast of characters.  That includes Tom Brady, the quarterback for the Tampa Bay Buccaneers.  Brady is apparently one of the only things still working in our country! 

College basketball’s top 5 only had one change, swapping out Big 10 powerhouses Iowa for Michigan in the current Top 5 of Gonzaga, Baylor, Villanova, Michigan and Texas. By the way, my wife, and virtually her entire family going back generations, are University of Missouri grads and they sure seem to take a lot of pride being ranked higher (#12) than Kansas (#18 in coaches poll) in the current polls. MIZ – ZOU! (I’ve been trained well). 

Two Pieces of Timeless Advice

Let’s wrap up with a few sayings from stock market legends that seem like good reminders given the current market environment:

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again.” Edwin Lefevre (otherwise known as the famous trader Jesse Livermore)

“Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.” 

Warren Buffett

 

Have a great week! For more insights and commentary, visit our Financial Advisor Success Hub.

 

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The CFA is a globally respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. To learn more about the CFA charter, visit www.cfainstitute.org.

The CMT Program demonstrates mastery of a core body of knowledge of investment risk in portfolio management. The Chartered Market Technician® (CMT) designation marks the highest education within the discipline and is the preeminent designation for practitioners of technical analysis worldwide. To learn more about the CMT, visit https://cmtassociation.org/.

About Rusty Vanneman
Rusty Vanneman, CFA, CMT, serves as Chief Investment Strategist of Orion Portfolio Solutions. He has been with Orion since 2012, previously serving as President and Chief Investment Officer of CLS Investments. Prior to joining the Orion organization, Mr. Vanneman served as Chief Investment Officer and Managing Director for an RIA in the greater Boston area. His 11-year tenure at the RIA included a five-year span during which the firm was owned by E*TRADE Financial, where he also served as Senior Market Strategist for E*TRADE Capital. He also served as a Senior Analyst at Fidelity Management and Research in Boston. Mr. Vanneman received a Bachelor of Science degree in Management from Babson College, where he graduated with high distinction. He is a CFA charterholder and member of the CFA Institute. He also holds the Chartered Market Technician® (CMT) designation and is a member of the CMT Association.