ND&S Weekly Commentary 2.1.21 – Volatility Spikes

February 1, 2021

Stock market volatility spiked last week as retail traders piled into stocks like GameStop and AMC in a battle with hedge fund short sellers. For the week, the S&P 500, DJIA and Nasdaq fell -3.3%, -3.3% and -3.5%, respectively. Small U.S. companies represented by the Russell 2000, declined 4.4%. Investors were concerned about volatility, new variants of the Coronavirus and the slow rollout of Covid-19 vaccinations in many states. The softness in the market lately is certainly not earnings related. So far, 50% of S&P 500 companies have reported 4th quarter earnings with 84% beating earnings estimates and 70% beating revenue estimates. This represents a year over year decline of 3.2%.

International equity markets also declined last week with the MSCI EAFE and emerging (MSCI EM) off -3.5% and -4.4%, respectively. International equity markets look attractive as valuations appear to be lower than U.S. markets. Given their more cyclical nature, international equities may have a stronger earnings recovery in the 2nd half of 2021.

Fixed income markets last week were quiet as the FOMC reiterated intentions to keep rates low for an extended period of time. Fed Chairman Jerome Powell also noted in comments that there have been upward blips of inflation, but communicated that the Fed will remain patient in its policy decisions. The yield on the 10 year U.S. Treasury Note remained unchanged at 1.11%.

The economy grew at a 4% pace in the fourth quarter 2020 according to the Bureau of Economic Analysis. The results missed expectations for a 4.2% increase. This week look for economic reports on manufacturing and services – both are expected to have expanded. On Friday, the monthly jobs report should show an increase in a turnaround from December’s decline in payrolls. However, forecasts range widely reflecting broad uncertainty among economists.

We are continuing to monitor asset allocations and rebalancing as necessary.

“Advice is like snow – the softer it falls, the longer it dwells upon, and the deeper it sinks into the mind.” – Samuel Taylor Coleridge