Market Monitor: January Update
Headlines and Highlights
- Recovery slackens but 2021 outlook strong: The U.S. economy slowed to a 4.4% annualized growth pace in the fourth quarter from the record 33.4% clip of the prior quarter after the initial COVID-19 lockdowns ended. 2020 was the first year of negative growth (-3.5%) since 2009 and the worst performance since 1946. The recovery is likely to cool further amid tighter pandemic restrictions before ramping up with the expanding vaccine rollout and more stimulus; the International Monetary Fund raised its 2021 growth forecasts to 5.1% for the U.S. economy, up from 3.1% in October, and 5.5% worldwide, an increase of 0.3 percentage point.
- Biden administration pushing for big stimulus package soon: President Joe Biden took office and immediately proposed a $1.9 trillion COVID-19 relief package calling for $1,400 stimulus checks, expanded unemployment benefits, aid for U.S. families and firms, state and local government aid and a $15 federal minimum wage. Senate Republicans objected to the size of the proposal. If the Democrats opt not to compromise they can still pass a substantial amount of the package without GOP support using the budget reconciliation process.
- Reddit rebellion roils short sellers: A revolt by small individual investors against hedge funds and their short positions caused a major spike in volatility in select stocks in the month’s final week and into February. The Reddit-fueled buying frenzy drove up shares of video-game retailer GameStop 400% and similarly super-charged a handful of other targeted stocks before they plummeted this week. Major stock indexes posted mixed results for January following a late-month decline. U.S. small caps rose nearly 5%, benefiting from the volatility of GameStop and other targeted small stocks.
Select Market Returns
Sources: Morningstar, Altair Advisers
- The economy should snap back to normal activity levels by the second half of 2021, fueled by broadening vaccine distribution, more fiscal stimulus and a wave of consumer spending as idled activities resume. The global economy should see similar improvement as the pandemic’s impact lessens.
- Stocks should see another positive year in 2021 thanks to ongoing monetary and fiscal support and a return to solid corporate profits. The market will likely see more volatility this year than it has in the rally of the last 10 months, however. A temporary pullback of 10% to 15% is likely at some point.
- The recent trading frenzy in isolated stocks is not reflective of an unhealthy market in our view, given the economy’s solid underpinnings and improving corporate earnings outlook. Altair portfolios’ risk to short squeezes are limited as none of our managers have exposure to single-stock short positions.
- Inflation should not see a meaningful increase this year even with U.S. government spending accelerating. Unemployment remains historically high at 6.7% and much of the stimulus money will go to fill the huge economic gap created by the pandemic.
- The Federal Reserve’s latest pledge to keep monetary policies ultra-accommodative as the U.S. economy recovers should postpone any market risk of tapering until well beyond this year. Fed Chair Jerome Powell noted that new strains of COVID-19 will represent an additional reason for continued caution even when the economy revs back up.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice