Yesterday marked the very first day of market activity for the year of 2021. You would think all the positive momentum of 2020 would be carried right over, but that didn’t happen. At all.
Here are the most important numbers you need to know about:
- Dow Jones: -1.3% (at one point the losses were greater than 2%)
- S&P 500: -1.5% (hit a record high before going down)
- NASDAQ: -1.5% (hit a record high before going down)
- Other stocks: -5.3% for Boeing, -3.8% for Coca-Cola
Just to give some context to how significant this drop was, here is some more information from CNBC:
“It was the biggest one-day sell-off since Oct. 28 for the Dow and S&P 500, while the Nasdaq had its worst daily performance since Dec. 9.”
MarketWatch also wrote a piece on how the stock market performs during the first day of the year, and what this means for the entire month of market activity. In the case of yesterday, it was the WORST start since 2016:
“The Dow, for example, has registered 18 occasions in which the blue-chip benchmark has declined by at least 1% on the first trading day of the year, and that has resulted only in seven overall declines in January, or almost 40% of that limited sample size. The index also finished down about 40% of the time for the calendar year, Dow Jones Market Data shows.
For the S&P 500, meanwhile, of the 12 times that it has fallen by at least 1% to start January, it has declined 42% of the time, or five times, for the rest of the month and the calendar year.
Meanwhile, the Nasdaq Composite has declined 57% of the time, or four of the seven times that it has opened a calendar year with a drop of 1% or more.”
So then the question becomes the following: What in the hell caused this sell-off?
Multiple factors, according to several news sources. Here are the main talking points I was able to gather from MarketWatch in their daily analysis of the stock market:
“Stocks were under selling pressure as investors worried about the potential for US rates to move higher as the American economy looks to recover from the pandemic.
Wall Street also is keeping an eye on Georgia’s as runoff elections on Tuesday in which two US Senate seats have the potential to inject fresh volatility into markets, particularly if the outcome sparks political turbulence in Washington around recent fiscal spending measures and easy-money policies out of the Federal Reserve.”
As The Financial Times notes, the second point is the more worrisome one:
“… [the election] will determine which party controls the Senate. The outcome could have major implications for incoming president Joe Biden. If Democrats win both seats, the Senate would no longer be Republican-controlled, granting Mr Biden greater power to enact his legislative agenda.”
So what’s going to happen in the long-term as a result of all this?
I honestly don’t know. Considering the sheer unpredictability of 2020, there’s no point in attempting to forecast the future. The best we can do is make educated guesses and react to whatever comes our way.
But I’m curious to know: What do YOU think of yesterday’s dismal start to 2021 when it comes to the stock market? Is this a sign of further declines to come, or nothing more than a blip on the radar? Reply to this newsletter and share your predictions with us!
The EASIEST New Year’s Resolution to Make for Your Finances…
This is the type of story you want to share with your children and any other young adults/teenagers in your life. Because in the year 2021, there is no better time than right now to put yourself on the right track towards financial success and independence.
And even though I don’t agree with everything The Motley Fool has to say, I do believe they are right when they recommend making your resolution a commitment to regularly buying an S&P 500 index fund:
“Even though the market was coming off of a terrific 2019, and in spite of a one-in-a-century global pandemic, the S&P 500 actually managed to surge 18.4% in 2020, including dividends [48.25% for 3-year returns, 102.1% for 5-year returns, 263% for 10-year returns).
Fortunately, you can reap the benefits of the broader market by investing in a low-cost index fund, which buys a diversified mix of stocks for you at next-to-nothing in fees. That’s why your New Year’s investing resolution should be to start with the aforementioned S&P 500 Index Fund (SPY).
By buying a broad index of stocks, you will get a weighted average of the best companies in the market. You will get the outperformers, which then become larger portions of the index, as well as the underperformers, which become smaller. You will get stocks that are undervalued, and also stocks that may be riding bubbles to overvaluation.
The beauty of this is that over the long run, a broad index of the biggest and best stocks is almost certain to appreciate over time. In the 90 years between 1926 and 2017, the S&P 500 appreciated by an average of 9.8% per year.”
However, I’m curious to know your answer to the following question: What do YOU believe is the #1 New Year’s Resolution anyone should make if they want to improve their finances?
Share your answers with us by replying to the newsletter!
Generation X Is Pissing Their Pants Over Their Financial Future…
A group of individuals who might benefit from the New Year’s Resolution I just talked about is Generation X, who are arguably the most concerned about their finances compared to any other age-based generation.
This discovery was made by the Bank of America after surveying nearly 1,000 employees who participate in some form of contribution towards their 401(k):
- Only 23% of Gen X-ers feel themselves making progress when it comes to saving for retirement
- Just 14% believe they’re on the right track towards covering current and future healthcare expenses
- 42% are stressed out about their finances
- 27% of Gen X-ers have less than $50,000 saved (versus just 18% of boomers)
- Gen X-ers have median household retirement savings of just $64,000 (versus $144,000 for boomers)
Why is it Generation X in particular facing these challenges? According to Forbes, there are three primary reasons: Talking care of children and/or aging parents during the COVID-19 pandemic, paying off oppressive levels of debt (i.e. student loans, credit card interest, mortgages), and facing a greater likelihood of being laid off during the COVID-19 pandemic.
2021 is going to be full of challenges, both for the well-off and the not-so-well-off. You might as well embrace the uncertainty and work relentlessly towards digging out of whatever hole(s) you find yourself in…
It Has Never Been THIS HARD to Afford a Home…
Over the 10 months of the COVID-19 pandemic (so far), we’ve seen mortgage rates continually reach record-lows and homebuyers dominate the market. They want to move, they know where they want to go, and they have the cash for anyone who will offer them what they want.
Unfortunately, that perspective may not be valid in 2021 anymore. According to some of the research compiled by ZeroHedge, it’s not so much that home prices have necessarily increased. It’s that homebuyers are in a worse financial position to BUY the existing homes:
- 30% of your income is needed to buy your typical home, and this number was last seen in the third quarter of 2008, making home affordability a 12-year low (Bloomberg)
- Borrowing costs for a 30-year loans are now below 3%, thus increasing the prices of homes due to erupting bidding wars for fewer available homes (Goldman Sachs)
- 33.5% of 18-34 year old adults live with their parents, a meteoric rise from ~27% back in 2005 (Goldman Sachs)
The lack of housing supply makes sense when you consider that most people are incredibly fearful of COVID-19. Even if they could easily sell their homes for a handsome profit, it’s not worth the risk of contracting the virus and testing positive.
Could 2021 be the second coming of the Housing Bubble last seen in 2008? No way to tell, but the current situation isn’t as optimistic as it was last year…