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.
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.
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.