The Independent Market Observer

Looking Back at the Markets in January and Ahead to February 2021

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Feb 9, 2021 4:27:53 PM

and tagged Commentary

Leave a comment

In January, the pandemic was in control, but the picture is changing in February. Commonwealth CIO Brad McMillan says that spring is on its way.January was a month of transition. Markets took a break, with small gains or declines. The presidential inauguration handed the reins from the Trump administration to the Biden administration. Winter finally arrived, at least here in Massachusetts. And with the start of mass vaccinations, we began the transition to get past the COVID-19 pandemic.

Looking Back

What the numbers tell us. You can see the different environment in the numbers. Both case growth and deaths peaked in January and then started to trend down. Positive tests also rolled over, and hospitalizations started to drop. Looking back, January was the month that the third wave crested. The improvement has continued across the board through the first week of February, with no signs of slowing down.

Two potential risks. Risks do remain. The two biggest are the potential for Super Bowl gatherings to spread the virus and the possibility of a more contagious variant of the virus pushing case growth up again. Still, the improving trend from last month looks likely to continue over time. From a medical perspective, the news turned from bad to not so bad in January, and it is continuing to transition to better in February.

Economic damage to start the year. The economic news looks to be about a month behind the medical news. Entering January, we saw the labor market stay weak. Job growth was negative, layoffs were up, and both consumer confidence and spending were down. Looking back, the economic damage from the third wave was clearly mounting.

Looking Ahead

Confidence and spending. Looking ahead, that mounting damage provoked a response that is showing up in February. The passage of another federal stimulus program, in December, started showing up in the confidence and spending numbers in late January and early February. In January, the improvement in the medical news had multiple states starting to reopen their economies. That trend started to reduce the layoff numbers into February. Although the turnaround is less clear for the economic news than for the medical news, it does seem to be just as real.

Markets rally again. You can see the same transition in the markets. Looking back, January started well, with markets running up. Later in the month, we saw some turbulence as economic and market worries started to weigh on sentiment. Then, in early February, the markets headed up again and have once more hit all-time highs. Despite the economic damage, the medical risks, and all of the turbulence with the market itself—think GameStop—the markets have transitioned back to rally mode.

The GameStop story. Let’s look at the GameStop story. On the face of it, this was a great story. A mob of villagers—well, Redditors—rising up against the evil hedge fund overlords, aided by Robin Hood (aka Robinhood)! You can’t make this stuff up. The saga caused real concerns about what it meant for the markets as a whole—and fears that it could disrupt the recovery. In many respects, GameStop was a story that connected the political turbulence with the markets.

And yet, as we enter February, that story too has transitioned from the rise of the oppressed to shake markets to something considerably less threatening. The hedge funds are largely still there, GameStop shares are down quite a bit, and the market is up. Increasingly, the market risks we know—and those that surprised us—are looking less threatening, and the market is responding.

Spring On Its Way

And that is the story looking back and forward. Looking back, January was a month when the pandemic still controlled. The third wave was firmly in place, health care systems were under threat, and the economies of many states were closed. As we move through February, we have states reopening, the virus subsiding, and vaccinations spreading quickly. Looking back, we had jobs declining, layoffs rising, and confidence down. Looking forward, layoffs—while still high—are down, and confidence and spending are up.

In other words, looking back, January was a much darker month than February seems to be. While risks certainly remain, and setbacks are highly possible, the change in trend between the two months is very clear. Looking forward, our prospects look clearer. While there will likely be storms in the next couple of months, we can see clearly that spring is on its way.

Subscribe via Email

Crash-Test Investing
New call-to-action

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®