Don't Game Stop the Market

The Halftime Show is Short

The market pullback sparked by the GameStop mania gave way to a strong rally last week. Amid the speculative frenzy and market volatility, we noted that 1) we did not believe GameStop was a signal of a broader market bubble, and 2) the underlying outlook for the economy had not changed, with the path ahead for economic and earnings growth remaining favorable. This doesn't mean it'll be smooth sailing from here, but we think last week highlighted the following important takeaways: The halftime show doesn't last forever: The Weekend's halftime show will be a spectacular: hype and eyeballs, but while the fireworks burn bright, they also burn out. The eye-popping gains in stocks like GameStop and AMC captured investors' attention, but "short squeezes" and "Reddit trades" are, in our view, not factors that drive the market sustainably.

Temporary headlines produce temporary reactions: The more important story here is not the investment merit of GameStop stock, but instead a reminder that even strong bull markets experience setbacks. The market's attention will wander periodically, spurring the occasional fumble, but temporary headline risks tend to produce temporary market reactions, not prolonged downturns. Invest, don't bet: We think the recent experience with GameStop highlights the difference between betting and investing. Both involve risk, but we think investors can help mitigate risks by diversifying and aligning decisions to goals, not emotions. Emotions often prompt an urge to sell when markets decline, in hopes of avoiding further downside.

The Super Bowl is a Long Game

Overall, a strong market week: U.S. equities finished higher, to cap off a week of gains and recapturing all of last week's declines, despite another monthly payroll report that showed the sobering impact of the pandemic. The optimism of further fiscal relief after the Senate paved the way for a new bill to be signed appeared to overshadow the much softer-than-expected jobs report. Meanwhile, another dose of encouraging COVID-19 vaccine news also buoyed the markets, courtesy of Dow member Johnson & Johnson's filling for an Emergency Use Authorization of its single-shot candidate. Earnings season remained robust, highlighted by Ford's unexpected adjusted profit, along with results from Pinterest and Activision Blizzard. Don't chase hot, diversify: The broadening of market gains, as we're seeing now, has historically been a characteristic of the early and middle phases of an expansion. Narrowing leadership within small portions of the market has traditionally been a feature of the later phases of a bull market. We think this means investors can have confidence in the outlook for the market, but they should use this as an opportunity to increase diversification across portfolios, not chase specific "hot" investments, as a way to navigate the field ahead. The economy is the quarterback: We think the economic recovery will continue to call the shots. Quarterbacks aren't on the field for every play, but their performance does tend to have the largest influence on the outcome of the game. The same is true for the market. Certain factors or risks can grab the ball for a time, but fundamentals – most structurally, the economy – set the direction and pace for the market over time. But if you do bet... Take the Chiefs and lay the 3.5 points. As we predicted a month ago KC gets its second Super Bowl in a row today. And that's your one-minute weekly market scoop. Enjoy the Super Bowl!

credit: Edward Jones Weekly.