MSFT Microsoft Corporation

By William Power 

So, 2021 was supposed to be more normal?

The stock market has been anything but. Markets in January hit records, and then quickly turned to mayhem. The frenzied day-trading in GameStop and other once-dormant stocks fueled but then brought the overall market down. In February, so far, stock indexes have risen to records or near-records again.

The total return of the average diversified U.S.-stock fund for January was a minuscule 0.3% after all the dust settled, according to Refinitiv Lipper data. As a category, the funds rose 19.1% for all of 2020, despite the economic pressures of the Covid-19 pandemic and the lockdowns.

International-stock funds, which on average rose 12.6% in 2020, fell 0.83% in January.

"The year is off to a funny start," says Sylvia Jablonski, chief investment officer with Defiance ETFs in New York. "We have a new president, we're sort of past the Georgia elections, and [it's] onward and upward as far as Covid vaccines," she says. "There is more cash into the market and things like that."

"But we've also had this funky thing of Wall Street versus we're-not-sure-exactly-who," Mrs. Jablonski adds, referring to the trading battle between small traders and hedge funds involving GameStop and other investments. A rally in silver that came out of the blue was also part of the frenzy.

Small-stock funds, meanwhile, have sprung to life, including "value" funds that buy stocks that are perceived to be undervalued. Value funds had been pummeled for most of last year by the pandemic lockdowns, but analysts had predicted they would do better once the economy improved. Small-cap value funds were up an average of 3.7% for January -- and up nearly 32% for the past three months. That outpaced the 2.8% January rise for small-cap growth funds, which logged a 28% rise for the past three months.

Mrs. Jablonski says she expects the U.S. economy to continue to improve, triggering a rally in what she calls "Get the Life Back into America stocks" -- airlines, casinos, hotels and service industries -- and a rise in consumer spending.

She says she wouldn't necessarily sell "quality or growth names" now. "There's a lot of talk in the market that Apple, Amazon.com, [Google parent] Alphabet, Tesla and Microsoft are overvalued, but they're crushing earnings. Everything that has set the market back has been a 'buy on the dip' opportunity," she says.

Bond funds were down in January. Funds tied to intermediate-maturity, investment-grade debt (the most common type of fixed-income fund) slipped 0.57% in January, after last year's overall 8.2% advance.

Mr. Power is a Wall Street Journal news editor in South Brunswick, N.J. Email him at william.power@wsj.com.

(END) Dow Jones Newswires

February 07, 2021 09:14 ET (14:14 GMT)

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