February 2021 Market Update
After a pretty lethargic January (the S&P 500 was down about 1%), stock indices have rocketed upward so far in February. The big news over the past few weeks has been the wild ride of some heavily-shorted stocks, although a lot of that activity seems to have settled down, for now.
While the S&P 500 index of large, US-based companies is doing well– up about 4.5% in 2021– smaller-company stocks are doing even better. The Russell 2000 index of small stocks is up over 16%. The emerging markets index is also continuing its outperformance and is up about 10% in 2021.
Interest rates have moved higher, and the 10-year US Treasury bond now yields about 1.16%, which is up from about 0.66% in August. That may not sound like much, but in terms of percentages, the yield has come close to doubling. When bond yields go higher, bond prices generally go lower, and we have seen that this year. Often, the best way to combat that is by owning short-term bonds, which tend not to be as interest-rate sensitive.
Oil and gas stocks have generally done well this year, as the price of oil has moved higher, which we have noticed at the gas pump. Stocks of financial companies are also doing well, as they tend to like a rising interest rate environment. On the other hand, utilities stocks and consumer staples stocks have underperformed, as they often do when interest rates rise. Of course, we’re only a month into 2021, so we’ll see if these trends continue to play out. It is my assumption that interest rates will push higher, which might make for tough conditions for bonds and utilities. I think it might be best to think of those areas as salmon swimming upstream—they can do it, but it won’t be easy.
My indicators show favorable conditions for most stocks now, but a pullback or two is likely. One thing that does bother me a bit is what appears to be a high level of excitement, bordering on greed, in the stock market. Not on all stocks, of course, but on a great many. It worries me when I see investors, or really speculators, chase stocks higher. This greed can go on for quite some time, as anyone who remembers Alan Greenspan’s “irrational exuberance” comments can attest. So, just because prices are high doesn’t mean they can’t go higher. I suggest not getting overextended in the high-flying stocks, though.
In summary, conditions remain supportive for higher stock prices, but don’t be surprised at a dip. They happen. If interest rates too much more, or if speculation becomes untenable, I may change my opinion about stock prices.
Other than my accountant friends, not many of us look forward to tax season, but it is upon us. Raymond James will start mailing 1099s in mid-February, but please keep in mind that your particular 1099 may not be ready at that time. In some cases, mutual fund companies are late getting tax information to us so that we can relay it to you. We absolutely want to get the 1099s out as soon as possible, but we have to make sure we get you the correct information. You should be receiving your personal copy of our 2021 Tax and Retirement Guide soon. If you hear anyone complaining about their taxes or considering retirement, just email or call me and I’ll send you a copy of the guide that you can send to them. Now’s a great time to plan for 2021 taxes (so that we can do something about them).
Lastly, our offices will be closed on Monday, February 15 in observance of Presidents’ Day. I hope you have a great February, and please don’t hesitate to contact us if you need us.
As always, these opinions are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss.
The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is made up of 3,000 of the largest U.S. stocks. Individuals cannot invest directly in any index. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks. Index performance does not include transaction costs or other fees, which will affect investment performance. Individual investor results will vary. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Sector investments are companies engaged in business related to a specific sector. They 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. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Scott Mitchell and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.
