February provides us with a stack of important economic scorecards: fourth-quarter corporate earnings reports, last week’s assessment of 2020’s gross domestic product (GDP), unemployment figures, consumer spending, as well as all the other regular reports that give us a snapshot of our recent economic history.
We also have the first information about the new administration, and data on the first full month of the COVID-19 vaccination rollout.
It’s a new year, but the same drivers of volatility remain: COVID-19, vaccine progress and politics. The S&P 500 had been up approximately 2.5% before a pullback on the last day of the month sent it lower for January – the first negative month since October. The broad equity markets declined in January despite the S&P 500 setting five new record highs during the month, and volatility “woke up,” to some degree on short-sell activity, ending the month at 32.4, up approximately 37% since the end of December. Four out of the 11 S&P 500 sectors were positive for the month, including some (real estate, energy) that had been lagging due to COVID-19 lockdowns.
The anticipation of another stimulus package is supportive of equity markets, as well, with the expectation it will build a bridge to a more normal time in the second half of the year. President Joe Biden has proposed a $1.9 trillion stimulus package, and while the administration seems to be seeking bipartisan support, the majority-rules budget reconciliation process could allow a unilateral approach in the end. The month to watch will be March, which is when many elements of the December stimulus package are set to expire. Nothing motivates like a deadline, so we may not see serious action until we approach that sunset.
In total, the economy is weaker than expected as unemployment drags the recovery with claims four times higher than before the pandemic. In the meantime, our extraordinary era continues as we work to reclaim ordinary.
I hope you and yours continue to remain safe and well as we cope with the continuing difficulties affecting the world. Thank you for your continued trust as we navigate this complex time together. If you have any questions, please do not hesitate to reach out.
And if you’re looking for a deeper dive into January’s events, be sure to read our monthly market recap here.
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Raymond James Chief Investment Office and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The S&P 500 is an unmanaged index of 500 widely held stocks. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges which would reduce an investor’s returns. Small cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Material prepared by Raymond James for use by its advisors.
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