January global market commentary: An underwhelming start to the year

Developed markets (DMs) wobbled into month-end, getting the year off to a negative start (MSCI World -1% MoM). This, as US Federal Reserve (Fed) Chair Jerome Powell sounded a cautious tone on the likely pace of the US economic recovery and investors were rattled by some unusual stock moves catalysed by a group of retail investors using a discussion forum on Reddit (“WallStreetBets”). By month-end, WallStreetBets had tripled its number of followers to c. 6mn, who allegedly drove a 1,600% return in the stock of GameStop Corporation, a chain of physical stores selling video game software. While investors were digesting the unusual stock market moves, governments were scrambling to roll out COVID-19 vaccination programmes, with c. 98mn vaccinations being administered globally by the end of January – also the deadliest month of the pandemic as c. 410,000 confirmed COVID-19 deaths pushed the cumulative global death toll to c. 2.2mn. Around 80% of vaccinations have been administered in the US, Europe (including the UK), and China, with the US having vaccinated c. 10% of the population by the end of January, while the EU lagged with <3% of the population vaccinated.

The marathon US political season ended with run-off Senate elections in Georgia delivering Democrats the two seats they needed for control of the Senate (by the narrowest of possible margins) and the swearing in of the 46th US President, Joe Biden. In the run up to Biden’s inauguration, a group of Republican supporters stormed the US’ political headquarters, Capitol Hill, where lawmakers confirming Biden’s election victory were forced to take shelter. The ensuing pandemonium left five people dead and resulted in former US President Donald Trump, becoming the first US president to be impeached for a second time. Investors anticipating more fiscal stimulus with Democratic control of the Senate drove US 10-year government bond yields above 1% for the first time since the pandemic started.

US 4Q20 corporate earnings season kicked off in January, with one-third of S&P 500 companies reporting earnings during the month. Companies that reported, saw aggregate earnings up 4% YoY. The best-performing sector for January was the energy sector (+3.8% MoM) as a surprise production cut by the Saudis saw the price of Brent crude rally 8% MoM.

Emerging markets (EMs) had a better start to 2021 than DMs (MSCI EM +3.1%), but this was largely thanks to Asian EMs, particularly China, with Hong Kong-listed Chinese corporates up 4.4% in January. Other EMs fared poorly with Brazil, Russia, and India’s stock markets falling by 3.3%, 2.7%, and 2.5% MoM, respectively. EM currencies also had a poor month against a strong US dollar as the Brazilian real, Mexican peso and Russian ruble fell by 4.9%, 3.4% and 2.4% MoM, respectively.



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