The COVID-19 story.
The pandemic continues to dominate much of what is happening in our country. The feared holiday surge has come to be. More than 433,000 Americans have died from COVID-19 complications. The spread of disease has transformed consumption habits, driving ongoing weakness in the labor market. Most of the high unemployment stems from the ravaging of the leisure and hospitality industry. This trend will continue until vaccines are plentiful and consumers begin to resume their pre-pandemic lifestyles with gusto. The vaccine rollout thus far has also had its share of bumps and obstacles. Until we are further along in eliminating the threat of COVID-19, expect the recovery in the labor markets and the economy to remain uneven.
Equity markets move higher.
The ongoing upward movement in the equity markets is not necessarily linked to the economic issues facing our country. Remember the markets are looking past the pandemic towards a future that is much different than what we are experiencing today. The plethora of government stimulus and central bank support has created an environment that remains promising for investment returns over the next couple years.
The GameStop phenomenon.
The omnipresent issue of speculation is leading to a certain frothiness in these same equity markets. The price movements of many companies that have recently gone public via the SPAC route, or attracted the attention of social media day traders, tells the tale of heavy doses of speculation versus reality. A timely example? GameStop. I’ll spare you the minutiae on short squeezes and Reddit threads that make up this story (you can find much more here), but here’s the gist:
Lots of small investors speculated together on little more than hearsay an innuendo, causing the stock to rocket higher. The higher the stock traded, the more the story went viral, causing massive volatility. In the end, I fear there will be many investors, both small and large, who will lose significant funds due to little more than speculation and hearsay.
This rampant speculation is a teaching moment for all investors. Even though speculation is always a part of participating in the investment world, the work lies in finding the why. Why is the stock or investment worthy of owning in the first place? Always keep that question front and center.
I remain optimistic that the equity markets will continue their trek higher through the rest of the year, albeit with some bumps along the way. Be smart with your investments as we move forward. And as always, reach out if we may be of any assistance.