Muddy Markets

2021 has been an interesting year for investors so far and the stock market is feeling eerily similar to every day life. Things are going pretty well, but trusting that to continue still seems like a bad idea.


After a good start to the year, markets in May were pretty much flat, casting some doubt on how investors feel going into the summer. As reported in Commonwealth’s Monthly market Update: “The S&P 500 gained 0.70 percent, and the DJIA saw a 2.21 percent return. The Nasdaq Composite fell by 1.44 percent.”


Despite the bland month, there are some strong trends that are persisting through this year.


First, the outperformance of value companies over growth companies continued narrowly in May, but is stacking up and impressive difference so far this year. The Russell 1000 Value is up 17.78% compared to a 6.44% return of the Russell 1000 growth index. This is a major reversal from 2020 where growth was the outperformer to the tune of 37.07% vs. 0.15% for value. This trend makes sense in an economic recovery, but it was getting hard to imagine after Growth companies had outperformed by a ridiculous 107.5% since the beginning of 2017 to the end of 2020 according to Y-charts data.


The second thing that persists is this mob investing we’ve been seeing since the whole Game Stop scenario. This behavior now has a name, and stocks that get piled into like this are now called “Meme Stocks”. This just means that people are buying the stock based on social media hype versus actual company fundamentals. The most recent example of this is AMC entertainment which saw it’s daily trading volume shoot from less than 100 million shares a month to over 700 million shares in the last few days. As of this AMC’s share price went up around 500% in less than a month.


We’ve seen this behavior cause some upsets for hedge funds, but thus far it has been benign enough for overall markets. It will be interesting to see how long this behavior persists or if regulators will eventually have anything to say about it.


Overall, this wild speculation in the market seems to still be what most investors are focused on with the perception that there is little to be gained elsewhere. Is this a sign that stocks are getting a little out of hand? Or are these investing trends like “Meme Stocks” and crypto currencies pulling some of the speculative money out of the traditional pools and doing the rest of us a favor? Time will tell.


With big gains in these random stocks going on like they have been, it can be very tempting to get in on the action, especially when the broader markets are being particularly boring. And we’re not saying you should or shouldn’t do that. Just remember what the purpose is for the money you’re investing like always. Are you investing money you can afford to lose? Or do you need the money to meet goals down the road.