February Newsletter 2021

We hope 2021 is off to a good start for you.  Recently we have received quite a few questions regarding Gamestop and what is going on in the stock market.  We thought you might be interested in reading up on what has been going on.

I. Gamestop: Internet forums vs. the professionals, or revenge of the nerds

When sentiment becomes overly bullish, any kind of negative surprise can create volatility. That’s exactly what happened at the end of January. And it occurred in a most unexpected way.

Professional hedge funds have heavily shorted several stocks, which they believe to be overvalued based on current fundamentals. Without getting into the particulars, shorting is a very risky way to make money when a stock falls in value. Theoretically, the loss on shorting is unlimited since there is no ceiling on a stock’s price.

With hedge funds hoping to profit, young traders using Internet forums (particularly wallstreetbets on Reddit), encouraged each other to pile into several securities. The goal: inflict pain on the professionals while turning a profit.

The stock that received the most attention was GameStop (GME), a struggling video game retailer that has been heavily shorted (CNBC, MarketWatch) by hedge funds. GameStop was selling below $20 per share in early January but peaked at over $480 on January 28, according to price data from Yahoo Finance. GameStop closed at $325 on January 29.

As February began, interest in GameStop had begun to recede and the price fell sharply. Is the insurgency over or might Internet traders look to other stocks? It’s a question that doesn’t offer an immediate answer.

To read more, click this link:

https://www.hartfordfunds.com/dam/en/docs/pub/insights/monthlymarketinsight/MFGS_020521.pdf

II. Rocky road: January Monthly Metrics

Why have stocks been on such a powerful run, overcoming a dangerous pandemic that has rocked our economy?

The economic fundamentals that lifted stocks over the last year remain in place. These include tailwinds that have fueled the advance include low interest rates, liquidity from monthly Federal Reserve bond buys, the Fed’s owns forecast that rates will remain low for a considerable period, massive fiscal stimulus, talk of more fiscal stimulus, an expanding economy, and better than expected corporate profits (Refinitiv).

Volatility can happen for any number of reasons, and a correction can never be ruled out.  What worried some investors late last month were fears that hedge funds being squeezed on GameStop might be forced to sell other stocks and raise cash.  Mix in social media, an Internet-driven rally, zero-commission trading, and idle hands that have been distracted from their pre-pandemic routines and unexpected volatility has surfaced.

However, we know that longer term, economic fundamentals and economic activity determine stock prices.

Over the longer term, relying on time-tested investment principles and avoiding decisions based on short-term volatility have historically led to the best outcome. We have crafted your financial plan based on many different factors. It is the roadmap to your financial goals. It is designed to remove the emotional component that may encourage you to sell when volatility strikes. It is also designed to prevent you from taking on too much risk when markets surge and even seasoned investors suddenly feel invincible.

Table 1: Key Index Returns

 MTD/YTD%
Dow Jones Industrial Average-2.0
NASDAQ Composite1.4
S&P 500 Index-1.1
Russell 2000 Index5.0
MSCI World ex-USA*-1.1
MSCI Emerging Markets*3.0
Bloomberg Barclays US Aggregate Bond TR-0.7

Source: MSCI.com, Morningstar, MarketWatch
MTD: returns: Dec 31, 2020-Jan 29, 2021
YTD returns: Dec 31, 2020-Jan 29, 2021
*in US dollars

III. How Big is a Trillion? We thought to look up the definition!

In the U.S., one trillion is written as the number “1” followed by 12 zeros (1,000,000,000,000). One year of clock time =

(60sec/min) x (60 min/hr) x (24 hr/da) x (365.25 da) = 3.16 x 107 sec

One trillion seconds of ordinary clock time =

( 1012 sec)/( 3.16 x 107 sec/yr) = 31,546 years!

Six trillion seconds equals 189,276 years. Now, as an aside, along with the nearly six trillion miles in the light-year, you might be interested to know that there are nearly five trillion dollars in the current U.S. national debt. Is it any wonder that our politicians in Washington are concerned?

(An interesting bit of trivia: If one were to count the national Debt at the rate of one dollar per second, he or she would have to use a mechanical counter to click off the digits. Why? Because, if he or she counted in the usual way, saying “one, two, three, …” etc., there would be numbers whose names are so large, that it would take more than a second of clock time to pronounce them. For example: “Nine hundred and ninety nine billion, nine hundred and ninety nine million, nine hundred and ninety nine thousand, nine hundred and ninety nine,” takes about 8 seconds to pronounce.)

Source: https://www.grc.nasa.gov/www/k-12/Numbers/Math/Mathematical_Thinking/how_big_is_a_trillion.htm
Web Related: David.Mazza@grc.nasa.govTechnology Related:Joseph.C.Kolecki@grc.nasa.gov
Responsible NASA Official: Theresa.M.Scott (Acting)

As always, we are very grateful for the opportunity to serve you.  If there is anything you need please let us know. If you have any additional questions, please email us at info@marsjewett.com or call us at (425)289-5000. We are grateful for you and your ongoing support.

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