A Look Ahead to February Markets
January 2021 has come and gone in what seems like an instant, and we move into the second month of the year. January, as expected, was an eventful time especially across the stock markets, and February promises to be equally as interesting.
Let’s look at what February has in store!
By now everyone on the planet has heard of the insane market movements of bricks-and-mortar video game retailer GameStop (1,625% in January) and now other stocks (AMC) lead by Reddit-fueled trading. The major news networks raced to explain what a “short squeeze” and did their best to highlight the David vs Goliath storyline that caused a mark-to-market loss of almost $20 billion to the big bad hedge funds who were short the stock.
In my opinion GameStop is just Blockbuster the sequel! Those that chase trading anomalies lead by chatrooms and Twitter are more than likely to get burned in the long run. Unfortunately, there are now investors that hold Gamestop in their portfolio at $400+/Share. Which will be an eyesore on their investment statements for much longer then GameStop keeps the headlines.
I’ve been asked my opinion multiple times around the subject and have always come back to this great advice I received early in my career; “If the stock market suddenly closed today and you couldn’t sell for at least two years would you be confident in the companies you owned”. I believe we all know the answer when it comes to GameStop.
President Biden – What It Means for the Market
After months of back and forth, Joe Biden was inaugurated as the 46th President of the United States. With his inauguration came the promise of lots of sweeping changes to the way the Trump administration had done things.
Biden has re-joined the Paris accord signaling a move towards green energy (No Surprise) and is looking to completely reshape the way the US generates its own energy. This will mean that green energy companies will have an optimistic outlook. We mentioned this a theme going into the election and its panned out even better than expected. Clean Energy stocks have skyrocketed and I’d be cautious chasing them at these levels.
The announcement of a $1.9 trillion stimulus plan looks to be another sugar rush for the stock market, which funny enough is very similar to the Trump tax cuts early in his presidency. This means the US Federal Reserve will keep that printing press on full throttle, keeping a lid on US dollar strength.
One contrarian investment theme of mine is investing in defense stocks. It is popular opinion that the defense industry is normally a theme for when the Republicans win elections. But I see value for a few reason; 1) Defense stock have underperformed as investors rotated into clean energy 2) No foreseeable budget cuts to defense spending 3) With the market at record highs defense stocks will act more defensive (pardon the pun) 4) The defense industry will play a large role in the private space industry (More to come later).
Jack Ma – Resurfaced After Months Missing
The recent anti-monopolistic posturing by the Chinese government on large Chinese tech coincided with the bizarre disappearance of Jack Ma (Chinese billionaire founder of Alibaba). This lead to a sell off late last year and in my opinion a buying opportunity. To the delight of shareholders, he’s now suffered lightening the tensions between investors and the Chinese government.
This highlights the unfortunate flaws with dealing with a communist country like China. But the truth of the matter is; “you can’t live with them, can’t live without them”. China will eventually overtake the US as the largest economy in the world and has to play a part of any long term portfolio. The key is to be as prudent as possible and navigate with added caution when making your investment decisions.
Big Tech – Big Earnings with a side of headaches
The political blue wave by democrats in the US brought with it potential issues for big tech. For investors Big Tech has been the gift that keeps on giving and until recently had been left unchecked. Times they are a changing, but doesn’t mean it’s time to cut and run, just expect some underperformance as the posturing takes place on both sides (As mentioned in prior newsletters)
40+ US states have filed anti-trust lawsuits against Facebook with a view to break up the Facebook company as the suits claim they have a monopoly. These anti-trust lawsuits will take years to go through the court process. Which is looking a lot like a Microsoft rerun from the 1990s and for those investors that stuck with the stock the rewards have been plentiful.
New privacy/data protections look to be a pain in the sides of all big tech who just love feeding off the data of all of us. Both no matter which side of the issue you stand on, these companies are here to stay in some form or another. We just have another earning season in which they all blew out earning expectations, so I personally won’t be counting these giants out.
Space a not so distant future
To wrap up this newsletter, we finish with a good reason to be optimistic and inspired by the launch of the Ark Invest, Space ETF. Private space companies market caps had rocketed as they get closer and closer to making space a reality. Not only for civilian travel but for global reach technologies.
Starlink is SpaceX’s ambitious project to build an interconnected internet network with thousands of satellites, to deliver high-speed internet to consumers anywhere on the planet.
Virgin Galactic is a British American spaceflight company within the Virgin Group. It is developing commercial spacecraft and aims to provide suborbital spaceflights to space tourists.
As I have said in previous newsletters, I have some extremely promising opportunities available this year that I have personally sourced, so if you want to make sure 2021 is your year, get in contact and I will see how I can help you.