Monday Morning QB - Market Observations:
- Vaccine Supply and Distribution Concerns Continue
- January Ends as the Deadliest Month of the Pandemic
- New Virus Variants Add to Lockdown Fears
- Federal Reserve Reminds Us of Their Continued Support - Holds Rates Steady in First Meeting of 2021
- Janet Yellen Confirmed as Treasury Secretary
- U.S. Economy Worst Since WWII…GDP (Gross Domestic Product) Declines 3.5% in 2020
- Day Trading - Fair or Foul? Investors on Social Media Sites, Hedge Fund Managers, and Politicians Battle Over a Handful of Heavily Shorted Stocks - GameStop's (GME) Wild Week…GME Price Range Last Week - low of $43 to a high of $483. (GME Activity Undermines Confidence in Markets)
- In REAL Financial News - Apple posted its biggest quarter ever
Monday Morning QB - Market Performance:
Vaccine distribution problems took center stage as stocks declined sharply last week with the pace of recovery in question.
The Dow Jones Industrial Average dropped over 1000 points last week closing at 29,983 - a decline of -3.3%. The technology-heavy NASDAQ Composite gave up most of the prior week’s gains finishing down -3.5%.
By market cap, the large cap S&P 500 fell -3.3%, while the mid cap S&P 400 and small cap Russell 2000 retreated -5.0% and -4.4% respectively.
Vaccination Issues Rattle Stock Market
Having just ended the deadliest month of the pandemic so far, can anyone be surprised that the vaccine rollout issues have started to creep into the stock market?
Some stock market growth can be attributed to investors looking past the current conditions to a future with a vaccinated population. That hope appears to have faded some as the Commerce Department reported the second month in a row of declining retail sales.
We have all been hoping that the much-heralded strong recovery in 2021 is a lock. However, the longer the setback in vaccinations lingers before reaching a safely vaccinated population number, the more the economic damage may continue.
Until the last couple of weeks, the stock market seemed set to look for the economic recovery getting a bump from more stimulus, helping to smooth out the ride while we ramp up vaccinations.
Current headlines have created doubts.
Having new variants of the coronavirus hit the scene while struggling to get the population vaccinated has intensified concerns over more lockdowns.
Will our vaccines work against the latest versions of the virus, and are you immune if you already had Covid-19? The answers are moot if you have not had the virus or the vaccine; you are just plain scared!
Lurking behind these questions is the threat of more shutdowns and the collapse of hope for a strong 2021 recovery.
The stock market does not like uncertainty, evidenced by last week seeing the worst week for the stock market since October.
President Biden hopes to increase the supply of the vaccines available over the next three weeks. He also plans to purchase enough vaccines to vaccinate anyone in the U.S. who wants to be vaccinated.
The proposed timeline for a fully vaccinated U.S. is before the end of the summer. Of course, there is always the goal versus reality.
The result of missed vaccine goals is likely shutdowns creating economic slowdowns. The market seems to be vacillating around the conflicting points - shutdowns or growth.
The Federal Reserve on Hold Even Though the Economy Has Softened
Lost within last week's market volatility was the Federal Reserve meeting and press conference, as well as the Q4 GDP report.
The Feds support of our economy is crucial until it is fully recovered.
The Federal Reserve is struggling with the same issues we are. Business activity has reduced as Covid-19 problems have risen. And, just like us, the Fed is hoping the vaccines will slow down the virus and speed up our economic recovery.
The Fed reiterated their continued support of the economy with its current policies. Chairman Powell gave no sign that the Fed would change course from the near-zero short-term interest rate policy or cut back on the bond-buying program.
Chairman Powell said the easy money policies would remain in place until the labor market has recovered and inflation is consistently around the 2% target.
The fourth quarter's 4% GDP growth rate continued to show our economy is recovering, albeit at a slower pace than the 33.1% growth rate from Q3 2020.
Unfortunately, Covid-19 damage from the second quarter of last year was not offset, leaving 2020 GDP as the worst year since WWII.
The lost economic momentum at year end came from COVID cases and deaths spiking since the Fall, partial shutdowns in some industries and states, and brewing social unrest around the Presidential election.
What Have We Learned?
Growth comes through economic activity, and shutdowns are the kiss of death to growth. Not following the social guidelines and shutting down economic activity on a wide scale caused our country to be graded poorly for our handling of the virus.
Data has proven the states that avoided the worst of the shutdowns in the Spring recovered better in the Fall. Unfortunately, it took a while for everyone to get on board with social distancing and mask-wearing early in the pandemic and the lack of following the safety protocol resulted in shutdowns.
The economic data compiled since the beginning of the virus has recently helped both New York and California better target where localized shutdowns were needed, leaving more of their economies open for business.
Maybe that will be enough for other states that lean toward shutdowns to reconsider.
Helping the case for avoiding shutdowns is the heightened awareness around the social protocols. With most of the population finally on board, hopefully, states will remain open for business while we all wait for our turn in the vaccine line.
A Final Thought…
Much of the stock market volatility centers around the current forecast. Is 2021 going to be a recovery year or not?
And, yes, much will depend on the vaccine rollout for the rest of Winter through the Spring. The debate about such things will inevitably lead to more volatility, evidenced by last week's stock market action.
One of our Seven Rules to Investing is "Volatility is the Cost of Building Wealth over Time."
Volatility is a healthy part of the market; someone buying while someone else is selling is healthy.
Investors tend to see things differently!
However, following a discipline about when to exit and enter the stock market built on your tolerance for risk is what risk management is all about.
Volatility creates better entry points to the stocks we determine are worth adding to your portfolio. Should the volatility give way to something worse, then we will look to lighten your stock exposure.
Typically, the buying point and the selling point come at a time of discomfort. Fear of losing money and fear of missing out on a rising stock market cause reactions in the opposite direction of our discipline.
One of the key reminders that you will often hear us say is, "You don't have to earn back what you never lose."
Therefore, we will continue to apply our "Seven Rules of Investing" and will be here for all of you should you need help keeping yourself from becoming an emotional investor.
Have a great week, everyone!