One of the most spectacular weeks since March last year is over. The S&P500 posted its biggest weekly loss since October 2020, closing the month of January and with it the 2021 year-to-date performance in the red. It is not unusual for the first month of the year to close in the red. In this case, however, the accompanying circumstances were quite unusual. More on that below. While small investors were banding together to pose a serious threat to the big hedge funds and teach the big guys a lesson, the real world continued with unreal measures by central banks and heavy-handed actions by governments in the fight against the declared pandemic. Cheap central bank money continued to flood the economy and miss the mark. Instead of flowing into the economy, most of the money went into the stock and bond markets. It is unnecessary to say that the average citizen has so far benefited the least from this flooding. On the contrary, the population must deal with rising inflation. While, among others, publicly traded companies (Tesla, BMW) are getting about 3 billion euros in EU government aid to boost their battery production in the EU for electric-powered vehicles. Meanwhile, the EU’s 10 largest banks have reportedly been ordered by the ECB to hold an additional 15 billion reserve in the fourth quarter of 2020 for pandemic-related loan losses.
If you didn’t catch any of the GameStop stock market frenzy, we owe you a very abbreviated summary: small investors gathered through social media had discovered that hedge funds had significant short positions on GameStop, a video game rental company and bankruptcy candidate, with a total volume of 140% of the company’s traded shares. As a result, over two million small speculators with their counter bets forced the top dogs to close their positions with large losses. This caused the price of the stock to jump further and more short-sellers to cover their positions (short sqeeze). The spectacular price increase called other day traders to the scene and the nightmare of all short sellers became reality. But “the empire” struck back by banning the buying of the stock and its derivatives (including several other stocks). In the middle of the game the rules were changed, because important players were losing! GameStop’s stock subsequently lost $11 billion in market value in one day. Investors furiously sued the trading platforms (including Robinhood), and shortly thereafter trading in the stock was allowed back on a restricted basis. At its peak, GameStop, a bankruptcy candidate, was worth $33.7 billion, giving it a higher market cap than half the companies in the S&P500 index. It is possible that the closing act has not yet been played. It is likely to remain exciting. Unsettled by these events, all it took was disappointing news from Johnson&Johnson that its self-developed vaccine was only 66% effective, and investors exited the market, leaving an S&P500 down 3.57%. Oil prices bobbed along, rising 0.06%. Gold fell 0.93% for the week and US T-Bonds posted a gain of 2.44%. ONE SIGNAL closed the week up 0.53% by activating the stops on Wednesday and Friday. At the end of January, passive investors lost 1.34% in the S&P500 and ONE SIGNAL gained +1.50%.
We remain true to our goal: “Playing out the big ones with small steps”. We wish everyone a great start to the week.