Equity market trends: early gains are lost
The equity markets were quick off the mark at the beginning of the year. Investors focussed on the potential of more fiscal support in the United States after the Democrats managed to secure a majority in the Senate, while vaccinations allowed optimism for a reopening of the economies. European equities and the Emerging markets were the main beneficiaries of this 'normalization scenario' during the first two weeks of the month. Cyclical sectors that benefit most from this scenario outperformed.
In the second half of the month, however, European stock markets performance was lacklustre due to less favourable economic figures, sharp containment measures and a hesitant start of the vaccinations. The American stock market indices - from growth stock market Nasdaq to the large Russell 3000 index -, however, reported new record levels. With the somewhat uncertain economic situation in the short term and the standstill of the upward interest trend in the US, growth equities, again, took the lead over cyclical companies.
During the last week, gains from earlier in the month were lost, with the exception of the Emerging markets. The markets became somewhat nervous after small investors had united through social media to evoke a 'Short squeeze' against large investors (such as hedge funds) that had sold certain shares without owning them. In addition to the stock price explosion of the concerned equities, the result for the broader market is that those large investors reduce their exposure to other equities in order to comply with margin calls. This may have resulted in downward pressure on equity prices for the market in general.
At the end of the month, approximately one-third of the companies of the S&P500 had published their results for the fourth quarter. In general, they were better than expected, but, on the whole, the companies were not rewarded for this with a positive price response. This may indicate that much of the good news has already been incorporated into the prices.