February 2021 Student of the Market
February Student of the Market Report
Click on the PDF below to read our most current “Student of the Market” report. This piece focuses on the investment environment and our thoughts on managing portfolios in this dynamic market. This issue covers January market returns, market timing, individual stocks, small cap stocks, and interest rates.
January Market Returns
Click on the attached PDF to see a graph that shows the average return following January. The average return of the remaining 11 months, after a positive January is 12.5%. Out of the last 58 years with a positive January, 12 ended negative (21%). The average return of the remaining 11 months, after a negative January is 7.6%. Out of 36 years with a negative January, 14 ended negative (39%).
Market Timing
Missing top-performing days can hurt your return. Click on the attached PDF to see a graph that shows a hypothetical $100,000 investment in the S&P 500 Index over the last 20 years (2001-2020). It shows that the investment consistently decreases as the number of days in the market missed increases. Since 22 of the 25 worst days in the market were within one month of one of the 25 best days, don't miss out when the market snaps back.
Individual Stocks
Not all stocks are created equal, but there’s strength in numbers. U.S. stocks broadly gained 15.2% over the last 5 years. 34% of individual stocks lost money in the last 5 years while only 0.2% of mutual funds lost money in the last 5 years.
Small Cap Stocks
There has been a historic bounce back in small caps. Small cap stocks outperformed large caps in 2020 for the first time in 4 years. Click on the attached PDF to see graphs that show the historic small cap outperformance over large cap stocks in the last 4 months and the top 10 periods of small cap outperformance.
Fund Flows
This past year was a record year for fund inflows and outflows. 2020 saw record outflows in equity funds, while bond funds had historic inflows. Click on the attached PDF to see a graph that shows the record divergence between stock and bond flows in 2020.
Interest Rate Predictions
Most economists can’t predict rates. A survey of more than 30 Wall Street economists shows that the year-over-year prediction of the directional change of the 10-Year U.S. Treasury Bond was only correct 45% of the time since 1992. Since 1992, economists predicted higher interest rates 23 out of 28 years. The average amount of error was 0.96%. The prediction for year end 2021 is 1.15%.