The new year kicked off with Democrats winning both Georgia Senate run-off elections, gaining narrow control of the legislative branch in the process. Equity markets initially cheered, but lost momentum as stimulus talks stalled and the vaccine rollout failed to meet some expectations. Stocks finished the month flattish, with small caps and emerging markets maintaining gains. Bonds retreated as concerns about rising debt levels rose.
New Administration Takes Office
President Joe Biden took office and issued a flurry of executive actions, largely surrounding health care, immigration, and COVID-19 related items. So far, there has been little talk of tax increases as the two parties attempt to converge on another stimulus bill. Still, we expect tax to enter the picture in a meaningful way later the year. The focus will be on tax increases, though Democrats have already introduced a bill to repeal the state income tax deduction limit. It is expected to pass the House but will face difficult challenges in the Senate.
A Word on GameStop
Symbolic of the times, the month ended with financial markets captivated by the GameStop saga, in which a group of Reddit users managed to initiate a short squeeze, sending GameStop and a few other beaten-up stocks spiraling higher. The story has been portrayed as a victory for retail investors over hedge funds, but we think it is most likely that many individuals will end up losing money on GameStop when all is said and done. The emerging power of social media to influence markets should not be underestimated, but we encourage investors not to lose sight of fundamentals or succumb to the dangers of reacting to fear of missing out.