Despite a strong start to the month, most stock indices gave up their gains in the last week of January. Both the S&P 500 and the MSCI World Index (an index of Developed Country’s stock markets) ended the month down 1.0%. Investors looked to be adding riskier stocks back to their portfolios as they moved into Small Cap and Emerging Market stocks. The Vanguard Small Cap Index Fund and the MSCI Emerging Market Index were up 2.2% and 3.1% respectively. On the fiscal side, the new administration proposed a $1.9 trillion “American Rescue Plan”, on top of the bi-partisan $900 billion stimulus that was agreed in late December. This flow of money to private households, and then back into the economy could lead to a significant acceleration in growth. For bond markets however, increased expectations of government spending are putting pressure on long-dated US Treasuries. The Vanguard Long Term Government Bond Index fell 3.6% in January.
With positive news surrounding vaccination roll outs and the large amount of stimulus on the horizon, we are somewhat optimistic but remain watchful of the path to a full economic recovery. We continue to recommend that investors remain prudent and expect further volatility in the near term though. The best way to protect from long-term investment declines is to diversify one’s investments across multiple, uncorrelated asset classes and investment strategies. Attempting to “time the market” is seldom a successful strategy and we would not recommend you do so.