Market Monitor: February Mid-Month Update

Headlines and Highlights
  • Stocks extend strong start to 2021: Stocks rose to a series of new highs in the first half of February amid optimism the pandemic is waning and Congress is on track to approve more than $1 trillion in new stimulus spending. The Standard & Poor’s 500 rebounded from a negative January to add 6.0%. Small caps as measured by the iShares Russell 2000 ETF are up 16.0% this year after surging at the start of February. Emerging markets outpaced developed markets abroad; the emerging-markets index was up 11.1% year-to-date thanks to China leading all major world stock markets in 2021 with a double-digit rise.
  • Economic outlook boosted by vaccine rollout: Economists have raised estimates for U.S. economic growth amid progress toward slowing the coronavirus and with more stimulus spending in sight to also aid the recovery. New COVID-19 cases and hospitalizations in the U.S. both are down about 50% from mid- to late-January levels. A blend of estimates by the Atlanta and New York Federal Reserve Banks now pegs first-quarter growth at 5.6% year-over-year, up more than a percentage point from the start of 2021.
  • Inflation stays low despite heavy government spending: Core consumer prices in January rose at a historically tame and slower-than-expected pace of 1.4% over the same month a year earlier, according to the Bureau of Labor Statistics. Inflation is little-changed over prior months even with government spending soaring and interest rates at zero. Policymakers expect any higher inflation moves later this year to be short-lived.
Chart of Interest

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Staying in check: Inflation excluding volatile food and energy costs continues to be tepid, held back by weakened prices for transportation and other services during the pandemic.

Sources: St. Louis Federal Reserve, Altair Advisers

Key Takeaways
  • Progress toward broad COVID-19 inoculation and an expected trillion-dollar stimulus package from Congress within weeks should further boost the economy near-term. Barring a resurgence of coronavirus cases, it is increasingly likely the reopening will start ramping up sharply in the second quarter.
  • Corporate profits’ increasing strength is a positive sign of the recovery proceeding. With more than 75% of companies reporting, fourth-quarter earnings growth is expected to be 3.4% — up significantly from the double-digit decline that was forecast at the beginning of this year.
  • Small caps’ continued strong rebound, including a 10% rise in the first half of this month, reflects the brightening prospects for cyclical stocks as the economic recovery gears up. The iShares Russell 2000 ETF is up 45% since the beginning of November.
  • Value and growth stocks are off to similarly solid starts in 2021 after a year in which growth stocks were predominant. The iShares Russell 1000 Value ETF was up 5.7% for the year through mid-February; its growth counterpart was up 5.6%.
  • The “meme stocks” that caught fire after retail investors rallied behind them in online forums plummeted, demonstrating the dangers of hyped trading fads not based on company fundamentals. GameStop, which rocketed from $18 a share to $483 in three weeks, is back under $50. AMC Entertainment, which increased sixfold in a week, is down more than 80% from its January 27th peak.

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