January 2021 Market Insights

By: Linda S. Parenti, CFA | Chief Investment Strategist

It is said that there often seems to be a disconnect between Main Street and Wall Street. Despite all the social and economic pain endured last year and the fastest market decline for the S&P 500 into bear market territory, 2020 ended with the S&P 500 rising 18.4% and reaching 33 new record closing highs. After last year, we really should be used to expecting the unexpected from markets. Which proves the point that market timing, which always seems quite sensible at the time, can be very costly to an investor’s long term return potential.

Many of the challenges caused by the pandemic remain with us. Winter months and the holidays have resulted in higher case counts, hospitalizations, and deaths. Vaccine distributions have started out slower than hoped. The combination has led to renewed restrictions in activities, resulting in slowing improvements in both the larger, services side of our economy and employment trends. Even with the disturbing scenes from Washington last week, the positive momentum seen in equities over the past two months has continued unfazed into the new year as the markets look to better days ahead.

Of course, with stock prices rising alongside expectations for future earnings, the risk increases that disappointments along the way may trigger pullbacks. It is helpful to remember that such periods of negative volatility are a normal part of a bull market and serve to correct imbalances. They should be expected, but as noted above, their timing cannot be predicted.

I expect that volatility could rise again in the months ahead. Yet, I am hopeful that as the year progresses, vaccines and warmer months will slow the rate of the growth in virus cases. At that point, our economy will have the opportunity to open more fully as our lives begin to normalize. In the meantime, resolute monetary policy support from the Federal Reserve and the increased fiscal aid from Congress will provide an important bridge. While there could be occasional setbacks, I remain optimistic overall for our economy and the equity markets in the year ahead.

Linda S. Parenti, CFA
Chief Investment Strategist

RISKS AND IMPORTANT CONSIDERATIONS

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.