The S&P 500 just had the best January market performance since 1987. The Dow Jones scored the best since 1989. And the Marijuana ETF had its best month ever.
In this blog post we’ll break down January market performance, the best performing investments on our platform for the month, and talk about the current market conditions and potential upcoming risks.
The stock with the #1 top January market performance: Marijuana Strategy.
Marijuana: +40.98% 🌿💨📈
Marijuana’s surge in August and September of this year (+24.28% & +19.62%) was nearly topped by the month of January alone. January was the best month of performance ever for the Marijuana MJ ETF.
Part of the reason was that January was a major risk-on month, and Marijuana is still quite risky because of legality, which could change. (Remember that risk and return are correlated, so the more risk you take, the higher your potential gain.) Currently weed is still illegal at the federal level in the United States, but 10 states and the District of Columbia have legalized recreational marijuana, and 32 states have legalized medical. Recreational marijuana is also expected to be legalized in New York soon (for 21+).
Other reasons include simply high flows of investors into the ETF, because as we know, the rule of supply and demand dictates that when there is greater demand, prices rise. Also, concern that attorney general nominee William Barr might take a negative stance toward legal marijuana was alleviated in January, when Barr said that he would not go after marijuana companies that have operated in compliance with earlier Justice Department guidance. Under previous AG Jeff Sessions, pot-positive guidance that had been issued under Obama was rescinded. It had allowed states to legalize pot without the threat of federal interference. Later in the month it became clear that Barr would likely ignore (he said, “I do not intend to go after parties who have complied with state law in reliance on the Cole Memorandum.) or potentially re-instate that guidance (he said he wasn’t sure language changes were appropriate), which lifted Marijuana stocks as well. The rally earlier this year was because of Canadian recreational legalization in the fall.
Trump’s legalization of hemp products and CBD oil, and alcohol companies’ sustained interest in partnering with weed companies also continue to help marijuana stocks outperform.
#2 Advanced Micro Devices (AMD): +32.23%
AMD stock has been incredibly volatile lately. The majority of the super performance came in the last couple of the month (+26.80% of the +32% return came on 1/30 and 1/31). MarketWatch has a good summary of what happened:
- [Investors liked] the company’s full-year 2019 outlook for high single-digit revenue growth, even with a forecast revenue drop of about 24% in the first quarter… Investors are clearly banking on the company’s next generation of chips for PCs and data centers/servers, especially its higher-margin Epyc chips for servers, coming out in the second half of 2019.
Square has also been quite volatile, but it recovered some of the losses it experienced in 4Q2018 in January.
In the first few days of the month, Square announced it had hired Amrita Ahuja as CFO. When the company’s previous CFO left in September, the stock dropped about -10%. A Morgan Stanley analyst thought Ahuja’s hiring was a positive and put out a note saying as much, which contributed to a +11% rise in the first week of January. Ahuja was the CFO of Blizzard Entertainment before Square. Square continued to rise throughout the month alongside other FinTech payment companies, but in the last week stumbled after a downgrade from a Raymond James analyst, who thinks the stock will underperform the market. He said that he believes Square’s growth peaked in the third quarter (when the price of the stock also peaked). Square was actually our platform’s worst performing stock of the week this week, down -9.63% as of 2:20 EST today.
More stocks with strong January market performance:
- Not far behind were Facebook (+27.16%), Netflix (+26.84%), MercadoLibre (+24.30%), Alibaba (+22.92%), & LatAm Unicorns (+20.13%).
- In this bull friendly month, 35 investments (just over half of our total offerings) returned over +10%.
- On our platform, only Tesla had a down month.
The three worst performers were Tesla (-7.75%), Buffett (+0.67%), and Bonds (+0.91%). Here’s what happened.
Tesla continues to be largely uncorrelated to the market. Musk announced significant layoffs in January, its profits declined in the fourth quarter from the third quarter, and the CEO said in his earnings call that “we have to be relentless about costs in order to make affordable cars and not go bankrupt.”
Buffett Strategy: +0.67%
Buffett’s Berkshire Hathaway fund might have underperformed in January because Berkshire’s price-to-book value, a closely-watched statistic, was the lowest since 2012 in late December.
On the flip side, analysts do forecast that the company should deliver solid earnings and revenue growth in both 2019 and 2020 during a period when many experts are forecasting a slowdown.
Bonds ETF: +0.91%
The fact that investment-grade bonds were also up in such a strong risk-on month suggests that investors are preparing for potential dark times ahead.
Thought for January 📈📉
The market’s huge rally since Christmas Eve has a lot to do with the Federal Reserve. After raising rates on December 19th, the fourth quarter sell-off worsened, at least until late December, when Fed Chairman Powell hinted that he would move slower on rate hikes in 2019. Then just this week, the Fed indeed did not raise rates, AND they suggested that not only might they not raise rates twice-three times as planned this year, but they might even lower them. The market surged to close out January on the news. In the fourth quarter, the Fed’s rates decisions affected the market dramatically remember, as it dropped about -20%.
As for this month’s stellar market performance, the S&P 500 ETF was up +7.9% (best January since ’87), the NASDAQ up +9.7% (best since ’01) and the DOW Jones +7.2% (best since ’89). Risk-off asset Gold (GLD ETF) was up regardless, +2.89%, and so was the Aggregate U.S. Bond Index AGG ETF, +0.91%.
Our recommendation 👌
If you’re in it for the long-term, just stick in it and keep buying. The next few years could present buying opportunities if prices drop or flatten for an extended period. If not, or in addition, you might consider diversifying with some more defensive positions, like bonds (Safe Haven ETF) and Gold (Gold ETF).
Quote of the month:
“The US, Europe, China – all of those will experience a greater level of slowing, probably a greater level of disappointment. … What scares me the most longer-term is that we have limitations to monetary policy, which is our most valuable tool, at the same time as we have greater political and social antagonism… So the next downturn worries me the most. There are a lot of parallels with the late 1930s.” – Ray Dalio, the top performing hedge fund manager of 2018 & all time
Dalio’s asset allocation recommendation to weather downturns: 40% long-term U.S. bonds, 30% stocks, 15% intermediate U.S. bonds, 7.5% gold, 7.5% other commodities. You may be aware you can invest in this asset mix through iBillionaire; we offer Dalio’s “All Weather” investment mix in one click.
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