As the first month of 2021 comes to a close, we look back on an eventful one. President Biden took office, rioting took place at the Capitol, wild swings have taken place in select securities and as per the new normal the pandemic continues to take center stage as we monitor the pace of vaccinations and daily cases.
*Equity Indices - FTSE Global Indices in CAD, Bonds - Barclays Global Aggregate Canadian Float Adjusted Bond Index based on end-of-day data for the Total Return Index as at market close January 29th, 2021.
Followers of the financial news will have seen headlines of a handful of stocks that have shot up in value astronomically as retail investors were placing active bets against institutional investors causing a “short squeeze” for those securities. The hype for these stocks has come primarily from online forums rather than business fundamentals, and although the action receives plenty of coverage in the news, it is important to note that there are significant risks carried with speculating on non-fundamental and isolated events.
Digital currencies have also been gaining in popularity and have been receiving greater coverage as institutional investors are allocating capital to these assets. Digital currencies are very interesting as they are uncorrelated to other financial markets and could provide portfolios with diversification benefits as a result. However, like the stocks receiving media attention cryptocurrencies are also subject to wild swings and are not as easily available to purchase compared to other asset classes. As this asset class matures, it may become a more viable option for a greater number of investors.
President Biden was inaugurated on the 20th and as he takes office his immediate mandate will be combatting the pandemic with vaccine distribution and fiscal stimulus as near-term priorities. On the monetary front the Fed has maintained its policy rate and continues to signal that we can expect rates to remain low as the year progresses to stimulate the economy. Most developed governments around the world will approach 2021 with the same philosophy and do as much as possible to fuel their economies until we are through this pandemic.
Human behaviour and biases have the availability to move markets significantly in the short-term, however fundamentals are what drive long-term performance. Investors who have tuned out the noise during the two most recent bear markets, held diversified portfolios and that have rebalanced strategically have been well served. We continue to believe in this strategy and with that said we encourage the use of pre-authorized contributions to tune out the noise and to stick to your plan.