Stock returns were fairly mixed this week. A slew of corporate earnings were released this week, which revealed many company’s earnings are still impacted by COVID-19. However, President Joe Biden wasted no time his first week in office and enacted a series of policies designed to slow the spread of coronavirus including travel restrictions and mask mandates. The hope is that these policies and the continued rollout of vaccines will help greatly reduce the virus’ spread by the summer. Meanwhile, congressional infighting over fiscal stimulus remains ongoing.
Evidence that COVID-19 still is impacting earnings can show up in unexpected places. For instance, industrial titan 3M benefited from demand for hand sanitizers, respirator masks and safety glasses. In addition, Microsoft saw revenue growth in its cloud computing business on the heels of ongoing shifts in homebound learning and remote work. Conversely, American Express took a hit with business travel and dining still muted.
Wrangling over the size of a COVID-19 relief package may take some time, as many senators have expressed concerns with the size of the $1.9 trillion stimulus proposal. In conciliatory fashion, Biden has said he could be open to revising the relief package; he believes just reaching an agreement will be half the battle. Execution and implementation may be an entirely different conversation.
While the corporate earnings we have seen thus far in January make a lot of sense in the context of the economy, there are hints that some speculation not tied to earnings is beginning to show up in the market. Investor interest is up sharply in areas such as electric vehicles, heavily-shorted companies whose businesses have been under duress and cryptocurrency. While investments such as these can be interesting and exciting—particularly when near-term returns are eye-popping—they can also be risky and volatile. It is usually prudent to detach emotions and euphoria from investing. We believe the better course for long-term investors is to stick to their stated investment plans and remain diversified in high-quality, fundamentally sound investments.
Stay safe and be well.
Market comments are based on indexes which are unmanaged and cannot be directly invested into. Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
The information provided, including references to individual companies are for general informational and educational purposes only and is not a recommendation of any kind or investment advice.
Diversification is an investment strategy that can help manage risk within your portfolio, but it does not guarantee profits or protect against loss in declining markets.
Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed.