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January 2021 Monthly Commentary

Updated: May 15

January 2021 Monthly Commentary

Economic & Market Commentary


  • Equity markets were off to a sluggish start in 2021. Despite the headlines in January, corporate earnings released last month were generally positive. Returns were mixed:

  • US large-cap stocks fell -1.1% after a solid first three weeks of the year.

  • Emerging markets and international developed countries were just marginally positive.

  • Small-cap stocks fared much better, but some of that had to do with the new headlines of an age-old problem - the short squeeze. Retail investors fueled by social media commentary, sent shares of a few select companies (with large short interest dynamics) soaring.

  • The bond market ended the month with the 10-year yield closing +15bps higher at 1.06%. The curve, measured by the 2-year/10-year spread, steepened 16bps to 95bps. Both Treasury and corporate bond prices fell and broad bond indices lost approximately -75 basis points. Shorter duration bonds were less impacted.   

  • The major market catalyst continued to be Coronavirus trends. At the beginning of January, the vaccine efforts acted as a tailwind to riskier markets. But virus cases and deaths grew, and numerous virus variants emerged. This coupled with bottlenecks in vaccine distribution had some investors questioning potential recovery timelines and market valuations.

  • The United States also saw the official inauguration of the 46th president of the U.S., Joe Biden. Everyone witnessed the political unrest and exceptional events that occurred before the official change in the administration, but markets somewhat shrugged off the events. Risk markets continued to rally into the last trading day of January when volatility reemerged.

  • President Biden was very busy in his first few days of office, signing a record number of executive orders including climate, pipeline, and immigration policies. A Covid-19 vaccination and a 1.9 trillion dollar US stimulus plan will remain key priorities.

  • Economic data, which doesn’t seem like a current driver of market direction, was mixed for the month.  Housing remained strong, partially as a result of low-interest rates. Consumer confidence remains buoyant despite lower than expected retail sales numbers in December. Manufacturing was “okay” in many regions, but the jobs picture continues to deteriorate. December non-farm payrolls came in at -140,000 jobs. Economists feel this is directly related to the outlook and duration of the pandemic. On the other hand, many continue to view the economy in a reflationary environment. Inflation gauges are benign but slightly higher than in recent months.  Prices paid to manufacturers were slightly more robust.  

  • The FOMC meeting and press conference on January 27th met consensus expectations. There was no talk of tapering the current bond-buying programs, and the Fed remains vigilant in providing liquidity to the system. The committee remains focused on pushing economic growth with targeted inflation levels. Chairman Powell does not expect inflation dynamics to change in the short-term. He mentioned there seems to be less “economic scarring” from the pandemic than one might expect and that the vaccine is the most important influence on economic recovery.

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