January Market Update

Friends,
 
In December, approximately 10mm people had been vaccinated worldwide for Covid, 3mm in the US. Today close to 100mm vaccines have been administered globally and 31mm in the United States. Vaccination progress is critical as we all look to get back to some normalcy. The markets are no different. The sooner people are comfortable getting back to their normal routines, the quicker we will see a more balanced market. Additionally, a new stimulus package appears to be larger than anticipated, which should help some of the most impacted sectors.

Market balance is critical. Certain technology companies have significantly outperformed in the last year and now account for a large percentage of what used to be diverse indexes. As an example, the S&P 500 is supposed to represent a broad cross-section of large US companies. This affords investors diversification via a single investment in the domestic economy. Apple, Microsoft, Alphabet, Amazon, and Facebook now account for over 17% of the S&P 500 weighting. These same 5 stocks account for close to a staggering 40% of the Nasdaq 100. As advisors, we are frequently reviewing your portfolio to ensure single stock concentration is within reasonable limits.

Major equity indexes started off the new year strong but retreated in the last week of the month. The S&P 500 was up over 2% intra month and closed 1% lower. The Russell 2000 Index was up over 10% intra month and closed up approximately 5%. US Government bonds continued their sell-off in January. Yields on longer-dated US Treasury Bonds increased 15 basis points, driving bond prices lower. TLT, an ETF that tracks investment performance of US Government bonds with a maturity of 20+ years, was down 3.5% in January.  

 I would be remiss if I did not reference GameStop, a stock that was in the news almost daily in January. This stock appeared on many social media bulletin boards, highlighting its large percentage of short interest. Short interest represents the number of shares that have been sold short and have not been covered or closed out. Frequently this number is used as a sentiment indicator. A large short interest often coincides with a more bearish sentiment. Shorting is frequently used by professional money managers and hedge funds to sell shares with the hopes of covering them at a lower price. GameStop’s price volatility highlights the power of social media. Reddit is a platform where amateur investors convene to share investing ideas. Reddit has 52mm, active daily users. Below is a monthly graph of GameStop stock going from a low of 17.08 to an intraday high of 483. The stock closed up over 1600% for the month, and the fundamentals have not changed. As I write this today, the stock is down almost 30%. As a professional with 30+ years of experience, I’ve never seen anything like this. It will be interesting to see how this plays out, but this feels a lot more like gambling than investing.

GAMESTOP (GME) JANUARY STOCK GRAPH

As always, if you have any questions, feel free to reach out.

Best,

Bob

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Jeremy Suarez

Jeremy has been in the financial advisory business since 2005 after graduating from Fordham University’s School of Business. He joined Tomoro as a managing partner in 2014. During his tenure, Jeremy has consistently excelled as an advisor in both the personal household and business planning arena. As a managing partner, Jeremy also serves as a mentor to all associates and is hands-on in supporting Tomoro’s growth planning. He has completed various curriculums and certifications, such as New York University’s graduate studies in financial planning, is a Certified Exit Planning professional, and Investment Advisor Representative. He and his family reside in Colts Neck, NJ.

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The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.

Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic, and industry conditions.

Statistics sources from Central Bank Rates and Bloomberg.

2021-115741 Exp 2/23