2021 Equity Market Focus: The January Short Squeeze and 2021 Market Outlook

JANUARY 2021 REVIEW & COMMENTARY

PETER W. TUZ, CFA, CFP®
PRESIDENT & PORTFOLIO MANAGER

After starting strong and rising 2.5% in three weeks, the S&P 500® index ended January with a thud due to one of the most unusual events in modern equity market history and ended the month down. The unusual event, of course, was the war between short-sellers and short-squeezers that developed at the end of the month and resulted in extreme volatility for a handful of stocks, the poster child of which is GameStop.

As a result, probably, of this market mayhem, the S&P 500® index lost 3.7% in the last week of January leading to the 1.01% drop for the month. That leads us to the question of the day – where do we go from here?

Historically, “down” Januarys change the outlook for the full year substantially. Historically, markets rise about 70% of the time. According to the Stock Market Almanac, a useful and interesting guide of market statistics published since 1967, when the market is down in January, the chances of the full year being up are basically 50-50. Their data shows that since 1950 the market was down in January 28 times (through 2020). It then went on to post gains for the full year 14 times and losses for the full year 14 times. Scarier still is the fact that the S&P 500® index continued to fall after every down January,
in some cases a little, in some cases (2008; -45.4%) a lot. So even though we are in six months of the year historically most favorable to equities (Nov. – April), it behooves us all to think a little more conservatively now.

A lot can happen between now and December 31st. We’ve seen two strong days in February and markets are now up again for the year (S&P 500 +1.87%).

Read the Full Market Commentary