Market Update – February 6, 2021

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Market Update – February 6, 2021

Stocks moved significantly higher this week, propelled by positive corporate earnings news and the increased likelihood that another substantial Covid-19 spending bill will become law. The S&P 500 and NASDAQ indices again touched new all-time highs. GameStop stock saw a massive reversal from the headline-generating highs of last week, highlighting the potential pitfalls of individual stock investing. Unemployment data continued to portray a labor market caught in flux between restrictions and reopening, as vaccination rollouts continue across the country.

For the week, the S&P 500 Index finished up 4.7%, while the Dow Jones Industrial Average advanced 3.9%. Year to date, the S&P is up 3.5%; the Dow has gained 1.8%. First-time weekly unemployment claims declined more than expected to 779,000, the lowest result since November. Continuing unemployment claims totaled 4.6 million, also beating expectations. January’s jobs report failed to meet consensus expectations, as nonfarm payrolls increased only 49,000. While this represents an improvement from December’s relatively dismal figures, the labor market continues to view widespread vaccinations as the best chance for a return to pre-pandemic strength. The unemployment rate dropped to 6.3% in January; however, that number was partially skewed by the falling labor force participation rate as sizeable numbers of people have left the workforce entirely.

Trading in GameStop remained active, even though at one point this week the stock was down a mind-boggling 89% from last week’s high. As we highlighted in our most recent market update, a company with less-than-spectacular fundamentals that has been bid irrationally higher can often lead to a precipitous drop. While the recent trading craziness in GameStop could prove to be an outlier event, we maintain our view that diversified investing both across and within asset classes is the prudent way to manage risk and help clients meet financial objectives.

U.S. fourth-quarter earnings results continue to bode well for the future. Forty percent of the S&P 500 companies have reported numbers thus far. Of those companies, more than 80% have beaten profits expectations. Combined with vaccinations ramping up across the country, coronavirus hospitalization numbers trending in a better direction, and increased prospects for a significant government spending bill – stocks have significant tailwinds of support over the medium-term. However, we remain vigilant in looking for signs of volatility in the short-term. Stocks have climbed so far over the last nine months that a pullback in the next few months is something we continue to anticipate, even though our baseline expectation is for a solid second half of the year. This is an excellent time to review with us your risk level and near-term cash needs.

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