All things market related
After a strong start, most equity markets gave up their gains as January came to a close. Developed market equities ended the month down 1%, although emerging markets significantly outperformed, ending January up around 3%. Initially, the global roll out of vaccinations and the promise of further fiscal and monetary stimulus helped the market to overlook concerns about virus driven restrictions. Stimulus expectations rose after the surprise Democratic sweep in the run-off election for the two Senate seats in Georgia, which completed Biden’s blue wave.
Over the month though concerns about delays to the supply of vaccines to Europe increased. A group of relatively small and heavily shorted stocks also rallied strongly as a group of retail investors coordinated a short squeeze, forcing some hedge funds to close out their shorts while also selling some of their long positions.
This technically driven sell-off helps explain the slump in equities towards the end of the month and, in our opinion, is not a reason for concern for long-term investors, given the likely strong rebound in growth that will accompany a vaccine rollout. Despite delays in Europe the vaccine rollout is progressing well in the UK and US and there was positive news from both the Novavax and Johnson & Johnson vaccine trials, particularly in relation to preventing hospitalisation.
Robust economic data and a moderate winter wave of Covid infections continued to support risky assets in north Asia. Strong returns from Greater China contributed to the outperformance of emerging market equities.
Defensive assets, such as high-quality bonds, were on the back foot in the first weeks of the month. But as risk assets sold off, government bonds regained some of their losses, with the ten-year treasury ending January down 1%.
The Australian Economy
The Australian economic recovery is well underway. Employment levels have recovered faster than previously expected, whichhas supported growth in household spending. Extraordinary policy measures have continued to support household and business cash flow and balance sheet positions.
Nevertheless, conditions in parts of the private economy remain weak. Investment intentions across most industries are sharply lower than before the pandemic. While some businesses have been able to adapt their activities, those in a number of industries such as the arts, hospitality and tourism continue to be significantly affected by the disruptions induced by the pandemic.
In a David and Goliath battle, the Reddit community took to buying GameStop shares to try and keep the company afloat after several large hedge funds shorted the stock. The surge in investment led to the share price increasing by around 1000%. causing those hedge funds who had bet against GameStop to lose billions of dollars.
GameStop was one of the companies that was most shorted compared to other public companies.
Tesla, Dogecoin and cryptocurrency
Tesla gave Bitcoin a boost with a $1.5 billion vote of confidence in the cryptocurrency. The investment by the EV market leader, and a move to start accepting it as a form of payment, sent Bitcoin surging more than 16% and briefly past $44,000.
Dogecoin started 2021 on a bullish note following a tweet by Elon Musk that saw the share price almost double. The stock, that was initially created in 2013 as a joke to satirize the growth of altcoins, was made available on more cryptocurrency exchanges during the month making investing in the stock available to more people. Supported by enthusiastic Redditors the stock also benefited from the Bitcoin share price rise.
Airline stocks took off on 8th of February following a proposal by House Democrats to funnel $15 billion in assistance to U.S. airlines to prevent layoffs.
US Treasury Secretary Janet Yellen emphasized that the fiscal stimulus package, if approved, could see the US return to full employment as soon as 2022, and that without additional stimulus it could take until 2025. A rapid bounce back is being projected.