January saw wild swings in heavily shorted stocks like Gamestop bringing into focus retail investors increased market participation and causing concerns about overall market stability. While social media and retail trading certainly played a key role in these price moves, it appears that sophisticated market actors were also involved, at least participating in the momentum created by retail investors. Several hedge funds have been left with losses, and are undoubtedly rethinking their approaches to risk management.
Overall, we remain positive on equity market risk. The conditions that were in place to begin the year are holding steady. Additional policy support appears to be forthcoming, vaccine deployment is trending positively even as new strains of COVID-19 emerge, and the fourth quarter earnings season surprised positively. Momentum in equities continues to be positive, as well. No areas of fixed income appear to be particularly attractive on a relative basis. Within real assets, we favor commodities as a hedge against an unexpected inflation surprise, especially given their positive roll yield.