Stocks Plunge Over 3% in Final Week of January

Stocks had their second significant selloff of the past three sessions on Friday, leading to steep weekly losses for all three major indices as we close out the first month of 2021 with a whimper.

We were doing just fine for most of January. Stocks came into this week with gains for the month on confidence that new vaccines and new stimulus would keep the economy happy while we put an end to the pandemic once and for all.

And that’s still how this will likely all play out, fortunately. However, the market isn’t going to be shooting higher the whole time… which we knew all along.

The Dow dropped 2.03% (or about 620 points) to 29,982.62 on Friday, while the NASDAQ slipped 2% (or around 266 points) to 13,070.69. The S&P was off 1.93% to 3714.24.

These losses were all the more difficult to take since we had a 2%+ selloff this past Wednesday. As a result, all three of the major indices plunged approximately 3.5% this week.

Furthermore, the Dow finishes the first month of 2021 lower by 2%, while the S&P declined 1.1%. The NASDAQ managed to gain 1.4%, which might be the best indication yet of how the tech-heavy index is outperforming its counterparts these days.

A pullback was expected given how much stocks had been running, but “SqueezeMania” caught investors a bit off guard. The speculative buying continued on Friday as Robinhood re-opened limited trading on the heavily-shorted names after restricting access yesterday.

As a result, the usual suspects soared again, including GameStop (NYSE:GME, +67.87%) and AMC Entertainment (NYSE:AMC, +53.65%).

The market can’t stomach much uncertainty, so this crazy action is causing some anxiety for investors. They can’t tell if this is just a bunch of bluster that will eventually peter out, or a sign of a market top and more substantial pullback.

But let’s not blame all of this week’s slide on the squeezers. We knew the market was getting tired and needed a break, especially since we’re still a ways from the vaccines making a general impact. And now we have new variants popping up that may be more resistant to the treatments.

And our Director of Research Sheraz Mian has an interesting take, suggesting that this pullback may be a “sell-the-news” type of reaction to the improving earnings picture being baked into the market. Make sure to read his latest article for more: “Earnings Strength and Market Weakness”.

So a rough end to the first month of 2021, but it’s good to temper confidence with some reality since there are still so many challenges ahead. Fortunately, the outlook for the rest of the year remains very favorable. There will be plenty of time to rally in the months ahead...

Today's Portfolio Highlights:

Large-Cap Trader: It’s time to add some new names to the portfolio as we move into February, but John doesn’t want to use his sidelines cash during this market volatility. Therefore, he sold Thor Industries (NYSE:THO) and Owens Corning (NYSE:OC) for returns of 12.8% and 12.3%, respectively, on Friday. HP (NYSE:HPQ) was also exited for 1.4%. Now he’s got the proceeds to add these three new positions:

• ASML Holding (NASDAQ:ASML) – a Zacks Rank #2 (Buy) semi company
• FedEx (NYSE:FDX) – a Zacks Rank #1 (Strong Buy) air freight staple
• Logitech Int’l (NASDAQ:LOGI) – a Zacks Rank #1 computer peripherals name

The editor thinks these names will do well in the current environment. In addition to strong Zacks Ranks, these stocks are all in highly-ranked industries and are “killing it” when it comes to quarterly earnings surprises. The plan is to take the cash from the three sells above and split it equally into ASML, FDX and LOGI, which would account for a portfolio weight of about 5% each. Get all the specifics on today’s action in the full write-up.

ETF Investor: Clean energy ETFs are a hot area right now, given continued technological innovation and more supportive policies from the new administration. Neena has been watching this space for a while and finally sees an opportunity to get involved after some selling in recent weeks. On Friday, the editor added iShares Global Clean Energy ETF (NYSE:XLE) (ICLN), which holds 30 of the most liquid companies that produce energy from solar, wind and other renewable sources. It’s the most popular fund in the field... and also one of the cheapest. Read the complete commentary for more on today’s addition of ICLN.

Healthcare Innovators: We received more good vaccine news last night when Novavax (NASDAQ:NVAX) released positive data from a Phase 3 trial in the U.K. that showed 89% efficacy. Unsurprisingly, the stock took off well past $200 today, which means Kevin “got most of what we came here for when the assets were underappreciated”. The editor thinks the stock will probably drift lower until the next data set, especially amid concerns of new covid variants that may not be as susceptible to vaccines. The editor sold NVAX on Friday for a nice 78.9% return in just a little over two weeks. Read the full write-up for more on this move, as well as Kevin’s analysis of “new challenges for vaccines and re-opening”. By the way, this portfolio also had the best performer of the day among all ZU names as Quidel (NASDAQ:QDEL) rose 10.4%.

Surprise Trader: The final buy of the week was Triumph Group (NYSE:TGI), an aerospace company that serves as an OEM of commercial, regional, business and military aircraft. It has a positive Earnings ESP of 7.14% for the report coming before the bell on Wednesday, February 3. Dave added TGI on Friday with a 12.5% allocation and also sold the slumping CSX (NASDAQ:CSX) position for a slight loss. See the full write-up for more on today’s moves.

TAZR Trader: The next front in the war against this pandemic will likely be the new variants and mutations springing up around the globe. Kevin has been talking about the need for “more and differentiated vaccines” to really put covid in the rear-view mirror. This uncertainty helped spike shares of Moderna (NASDAQ:MRNA), which has used its technology to develop one of the most effective treatments out there. The editor decided to sell MRNA on Friday to secure a nice 55.8% return in a month. The portfolio got what it wanted out of this name, which might struggle to sustain the momentum in the near term during concerns over the new strains.

Have a Great Weekend!
Jim Giaquinto