As we closed out 2020, the overwhelming sentiment entering January was that it couldn’t get much worse. Unfortunately, January did not start out on a high note. During the first week of the month, protesters stormed the United States Capitol, leading to violence, the disruption of the presidential election certification, and several deaths. Nevertheless, the inauguration of Joe Biden as our 46th president took place as scheduled. January also saw the emergence of virus mutations, the uneven distribution of COVID-19 vaccines, and the gradual relaxation of pandemic-related restrictions. Also during January, a new phenomenon in stock price manipulation emerged involving several companies, including a video-game company. Ultimately, stocks closed the month mixed, with the Russell 2000 and the Nasdaq gaining, while the Dow and the S&P 500 fell. Treasury yields, the dollar, and crude oil prices advanced.

With more vaccines being rolled out, businesses starting to reopen around the country, and job markets improving, the economy, stock market and investors have been reflecting a renewed sense of optimism in recent weeks.

Especially following the events of this past year, having positive news and an optimistic outlook is a welcome feeling for advisors and investors alike. While it is great to enjoy this moment, it’s very important to help maintain your clients’ expectations that any number of issues could trigger emotional volatility in the markets.

A key area for potential volatility is if there’s any significant bad press surrounding the Moderna or Pfizer vaccines. The J&J vaccine caused some minor blips in the market earlier this month, but it’s not as big of a player as the other two vaccine options. With the more popular vaccines, there could be a more significant response.

Another concern is with the virus itself, and whether it will be significantly reduced by the vaccine, warmer weather, and appropriate social distancing measures. If states start to shut things down again due to spikes in cases, or if they start to reenact mandates or restrictions, an adverse impact would be expected in the stock market as well.

Investors will continue to watch for signs of escalating inflation, despite the Federal Reserve’s forecasts to maintain interest rates at their present levels through 2023. Inflation numbers may start to look big, especially when year-to-year reporting is considered. A year ago, the shutdown was just getting started. But the rising inflation numbers are to be expected, and doesn’t mean that prices are skyrocketing. The pandemic made the numbers look different from what would typically be seen, and that’s something to remember when trying to determine how much inflation is actually growing or affecting purchases and prices for goods and services.

And as we saw in the markets April 22, the news of a potential increases in capital gains taxes to as high as 43.4% for wealth Americans has also jolted the markets. Any number of legislative changes could come through and disrupt positive momentum at any time.

Recent stock market forecasts are definitely optimistic, but there’s still a hint of caution mixed in with them as well and any additional moves higher will likely come with some difficulty. It’s important to remember that it’s still early in the pandemic recovery. Fortunately, Beacon portfolios offer built-in protection enabling your clients to appreciate upside potential, with limits in place in case of a market correction or unexpected volatility.

Your professional guidance continues to be essential to the families you serve, to help keep emotion at bay and provide a steadfast approach to limiting volatility from derailing their financial goals. Thank you for your continued commitment and service to your clients. For more educational resources about Beacon’s investment philosophy or the importance of limiting lossess while working to capture gains, please reach out to your wholesaler.

Sources: AP News, Investor’s Business Daily, CNBC

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