Week in Review: January 29, 2021

Equity markets ended down in a week dominated by a struggle between retail investors and large institutional hedge funds, and uncertainty about the efficacy of vaccines against new coronavirus variants. The S&P 500 posted its largest weekly decline in three months after internet chat room users traded on heavily shorted stocks like GameStop and AMC, creating a short squeeze that sent hedge funds reeling and caused trading platforms to impose restrictions aimed at curbing the volatility.

Following its January meeting, the Federal Reserve reaffirmed its commitment to keeping rates low and continuing its bond buying program. In response to speculation that the Fed might be considering tapering its bond purchases, Chairman Powell stated that such talk was “premature” and that the Fed is “focused on finishing the job we’re doing, which is supporting the economy.”

As the death toll in the US nears 440k and more contagious mutations of the virus emerge, vaccine makers are racing to develop boosters to protect against the new strains. Most worrisome is a mutation that originated in South Africa. The strain was found in South Carolina this week and contains mutations that may help the virus resist vaccines and antibody treatments.

Through Friday, 37% of S&P 500 companies had reported fourth quarter earnings, with 82% beating their consensus estimate. Currently, fourth quarter earnings are expected to contract 2.3%, far better than the expected 9% decline estimated at the start of earnings season.