It seems the focus this past week has been on the volatility creeping back into our markets. Specifically, on the erratic trading that has taken place among a handful of stocks including Gamestop, Bed Bath & Beyond and AMC Entertainment to name a few. The common component among these stocks is that they are, or were heavily, “shorted” by sophisticated Wall Street investment managers. Smaller investors, on the other hand, have been driving prices higher without any real fundamental reasons.
*Short selling is an investment or trading strategy that speculates on the decline in a stock or other securities price. It is an advanced strategy that should only be undertaken by experienced traders and investors.
The last line tells the story in my opinion. The speculative trading we have seen over the last week or so reminds me of the 1999/2000 technology bubble. The main difference this time around is that this activity, so far, has been concentrated in a very small segment of stocks. A segment that by and large is situated in the retail sector which has been one of he hardest hit by the pandemic. The moral of the story is simple, “Don’t wade into waters with which you are unfamiliar”. Many of the investors who are participating in these strategies are simply in it for the game.
Corporate earnings from the 4th quarter continue to roll-out at a feverish pace and thus far remain strong. We are encouraged by this as the economy continues to heal. Stimulus out of Washington on the other hand seems to be bogged down as it appears more and more likely that some type of compromise will need to be reached before actions are taken.
Johnson & Johnson released some positive data today on the effectiveness of their vaccine. While early data shows that it falls slightly short of the effectiveness of the other two currently on the market, this should be a viable option for the wider public. A link to the article is attached below.
From a market standpoint, January is ending on a flat to soft note. Considering where we have come from over the last 12-months, I think this is ok and normal. Taking a deep breath and settling-in can be healthy. We are in this for the long-haul after all.
Stay safe and healthy!
Your local Towson Financial Advisors