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Investment Update

Updated February 19, 2021

Our investment team remains committed to sharing regular updates and market insights to keep you informed. Please look for our next update on March 5.

Equity Markets and Yields Trend Higher

Equity markets continued their march higher. The S&P 500 is up 4 percent, the NASDAQ is up approximately 8 percent and the small-cap Russell 2000 is up over 12 percent. Fiscal and monetary stimulus, improving news on COVID-19 cases and vaccination efforts, and much better than expected fourth-quarter company earnings are the forces currently propelling higher equity prices. Intermediate and long-term treasury rates also continued their moves higher with the benchmark 10-year treasury hitting 1.31 percent this week.

Bitcoin and the Cryptocurrency Craze

There has been a great deal of discussion regarding bitcoin and other cryptocurrencies in recent months as the price of bitcoin has gone from approximately $10,000 to $50,000 since October. Just in the last couple of weeks, custodial bank BNY Mellon announced that it would handle cryptocurrency for clients, and Tesla said it would accept bitcoin as payment and would keep some of its corporate reserves in bitcoin.

Bitcoin was created in 2009 and was the first and most popular of the various cryptocurrencies. Bitcoin is not issued or backed by any banks or governments. It was created, distributed, traded and stored with the use of a decentralized, public ledger system, known as blockchain that everyone can access. Bitcoin is appealing because transactions are verified by a tremendous amount of computing power, providing confidence in its legitimacy. Also, bitcoin is truly international without the limits of domestic currencies, and in most cases it removes middlemen, thus reducing transaction costs.

Perhaps its most important feature is the finite number of units that are made available, limiting supply. As more participants become involved in the market, demand is increased. With supply essentially fixed, prices can increase significantly to satisfy demand. While this could initially be great if you are a holder of bitcoin, it can result in extreme volatility and may evolve into an economic bubble situation.

Volatility, especially on the downside, will likely reduce its attractiveness as a store of value over time. Other concerns include an expected increase in government regulation and the fact that it does not produce a revenue stream, making valuation difficult. Finally, aside from anecdotal stories, we have yet to see cryptocurrencies widely accepted as a transactional currency in the normal economy. While momentum-driven markets like we are currently seeing in bitcoin can be exciting, it is almost impossible to call a top and corrections are likely. Cryptocurrencies are likely to have some type of role in the future, but given the current speculative nature of the asset class we would advise caution.

COVID-19 News Improving Significantly

The number of new COVID-19 cases continues to drop sharply. Cases are now down 67 percent from their January high in the U.S. with similar drops in the U.K., Canada and Japan. Hospitalizations and mortalities continue to fall as well, with the seven-day moving averages down 19 percent and 17 percent, respectively, versus a week ago. The number of vaccine doses administered also continues to increase. The seven-day moving average is up to 1.72 million doses per day, increasing 15 percent versus a week ago. About 12 percent of the population, including 50 percent of those age 75 or older, have been vaccinated. Variant strains remain a concern. However, with much greater vaccine supply coming over the next couple of months and warmer weather ahead, the worst of the pandemic is hopefully behind us.

Retail Sales Better Than Expected

Retail sales were up 5.9 percent in January, much better than the 1 percent expected increase. Discretionary retail sales, such as electronics, e-commerce and furniture, were notably strong. The sharp increase follows a couple of disappointing months for retail sales. Stimulus checks may have been one of the driving forces behind the increase.

What Should I Be Doing With My Investments?

We encourage you to pay attention to the latest developments, but not to lose sight of your long-term investment strategy. Reach out to our investment team to discuss your options and reaffirm your timeline and goals. Call our investment team at (518) 415-4401.