US Markets Gain 2% and Small Caps Surge 6% in First week of 2021

The first week of the new year was marked by the Dow (+1.7%), NASDAQ (+2.5%) and S&P 500 (+1.9%) showing fairly strong gains, along with the small cap index gaining about 6%.  These gains came as the Democratic Party won both Georgia Senate races, and secured a “blue wave” in the US government.  While initially expressed as a concern, it is now being embraced as favorable for the markets, as the razor-thin lead in both houses of Congress imply that more radical policy changes will likely not be implemented, but that a healthy stimulus package would likely be passed in the near term.  That stimulus package may provide additional aid to small businesses, local governments, and increased stimulus checks to individuals, all of which are favorable to the stock markets.

On a separate note and as a follow up to our economic commentary from last week, we have decided to postpone our portfolio allocation changes until after the presidential inauguration.  While we do not subscribe to conspiracy theory, there are enough reports being circulated which suggest that additional political unrest could emerge before the inauguration.  Even though we believe this may be unlikely, it wouldn’t be prudent to increase portfolio risk knowing the possibility of this occurring, as events of political unrest would almost certainly create significant downward pressure on the markets.