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Commentary provided by John Packs, Senior Investment Officer, AIG Retirement Services

Weekly Market Performance Snapshot (Week ending January 29, 2021 and Year-to-Date)

  • Dow Jones Industrial Average®:  -3.3% | -2.0%
  • S&P 500® Index:  -3.3% | -1.1%
  • NASDAQ Composite® Index:  -3.5% | +1.4%
  • Russell 2000® Index:  -4.4% | +5.0%
  • 10-year U.S. Treasury note yield:  1.08%
    - Down 1 basis point from 1.09% on January 22, 2021
    - Up 16 basis points from 0.92% on December 31, 2020
  • Best-performing S&P 500 sector this week: Real Estate, -0.2%
  • Weakest-performing S&P 500 sector this week: Energy, -6.6%

    Past performance is not a guarantee of future results.

January ends with a choppy week

Equity markets were topsy-turvy through the week, ultimately suffering their sharpest losses since October. Concerns about the pace of vaccine distribution and the vaccines’ effectiveness against new virus variants weighed on market sentiment Wednesday and Friday, while price volatility in a handful of stocks made markets jittery.

  • Big tech companies reported earnings this week. Apple reported its best quarterly revenue figure ever, topping $110 billion. Tesla fell short of earnings expectations, but still turned in its sixth consecutive quarterly profit, making 2020 its first-ever profitable year. Microsoft also reported strong earnings.
  • Despite the good reports, several big tech stocks were flat to negative and the tech-heavy NASDAQ Composite lost 3.5% for the week—an indication that markets may have increasing concern about whether the sector can sustain high valuations after 2020’s price surge.
  • Retail traders created a bit of a frenzy around a handful of stocks, including GameStop and AMC Theatres, sending their values soaring in an apparent effort to pressure short sellers (investors who make bets that a stock price will fall). The movement rattled some pockets of the market, and other similar episodes may occur in the future.
  • Friday was January’s last trading day. Equities initially carried over some momentum from 2020, but the Dow Jones Industrial Average and S&P 500 Index finished down for the month. The broadening of the market momentum we saw at the end of 2020—lifting small-cap and cyclical stocks—has continued into the beginning of 2021. The small-cap Russell 2000 Index turned in the best January performance among the major indices, rising 5%.
  • The 10-year Treasury yield dipped as low as 1% during the week, before closing the week at 1.08%, just a tick below the previous week’s close. After spending much of 2020 at historic lows, the 10-year yield floated mostly in the 1%-1.1% range in January.

Data shows the U.S. economy grew in Q4 2020, with further growth expected in 2021

The U.S. economy grew at a 4% pace in the fourth quarter of 2020, according to the first reading on GDP released Thursday. Yet the U.S. economy shrank by 3.5% for the full year, and even the fourth quarter wasn’t entirely rosy. Consumer spending fell in November and December, and the economy shed jobs in December, suggesting that the end of the quarter was worse than the beginning, as the virus surged and restrictions on economic activity took hold.

  • Early reports for 2021 indicate that the economy is still struggling to overcome the latest impacts of the virus. Weekly new unemployment claims declined to 847,000 from the previous week’s 914,000. In absolute terms, this number is still very large. On a relative basis, the figure is higher than comparable figures in October and November.
  • At a Wednesday press conference following the Federal Reserve’s two-day meeting in Washington, Fed Chairman Jerome Powell confirmed that the U.S. economy is currently in a rough patch and reiterated the central bank’s commitment to maintaining monetary support for the foreseeable future: “The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.”
  • Powell also noted that while there may be some upward blips in inflation this year as the economy gets back on track, the Federal Reserve will be patient in its policy decisions: “Expect us to wait and see and not react if we see small, and what we would view as very likely to be transient, effects on inflation.”
  • Private sector economists expect the U.S. economy to grow 4%-4.5% in 2021, and the International Monetary Fund expects U.S. growth of 5.1%. However, the big question mark is how quickly vaccines and other measures can get the coronavirus under control. As this week demonstrated, markets are eager for vaccine success, and nervous about any sign that the path to ending the pandemic could be bumpier or longer than anticipated.

Final thoughts for investors

This week’s volatility was a good reminder that it’s important to stay focused on long-term goals. As some assets and sectors decline, others gain. Investors should expect more price volatility in the future, so diversification is paramount. Speak with a financial professional about positioning for a variety of economic and market conditions.

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