Stop me if you’ve heard this before… last month brought with it a heavy dose of the unexpected. It was a month of momentous change, exciting in ways both good and bad. In short, anything but the boring start to the New Year that many of us may have hoped for.

During the month, the S&P 500 hit new records, concluding one of the strongest post-election runs since the first Roosevelt Administration. Earnings were generally good. By the third week of the January, FactSet was writing that company earnings were coming in 22.4% over estimates, well above the five-year average of 6.3% and the second largest earnings surprise percentage since 2008, when the company began tracking the metric.

On the political front, President Biden was sworn into office, but not before a motley group of protestors managed to wreak havoc, storming the Capitol building. The two Georgia U.S. Senate races tipped in favor the of the Democrats, resulting in a 50-50 split in the upper chamber and handing the tie-breaking vote to Vice President Harris. The significance of this was quickly apparent as the new Administration rolled out its $1.9 trillion stimulus proposal and made plans to push it through on a straight party line vote. As a direct result of the insurrection at the Capitol, the House again voted to impeach now former President Trump.

Oil prices rose as Saudi Arabia announced production cuts, and U.S. employment fell, with the Labor Department’s December report showing a decline of 140,000 jobs (later revised downward to a loss of 227,000 jobs), led by a 498,000 drop in the leisure and hospitality sector. The jobless rate stayed at 6.7%.

In this way and others, the impact of the coronavirus continued to be felt, even as investors were increasingly inclined to look past it. The U.S. Federal Reserve acknowledged the weakness in the economy but like others appeared encouraged by the rollout, however haphazard, of the COVID vaccine. Nonetheless, the Fed elected to proceed cautiously, holding short-term interest rates near zero at its end of the month meeting.

In other coronavirus news, Bloomberg reported just after month-end that more Americans had received at least one dose of the vaccination (26.5 million) than had tested positive for the virus (26.3 million). The World Health Organization also noted that, globally, Covid-19 cases had declined for three weeks in a row.

The near-term push and pull in the markets continued into the final week of January, which saw the indexes give back much of the month’s gains, with both the S&P 500 and the Dow Jones Industrial Index falling -3.3% and bringing two of the three major equity market indexes into negative territory for January. For the month, the S&P was off -1.1%, the Dow -2.0%. The Nasdaq gained 1.45%. Yields on the 10-year treasury rose above 1% for the first time since March.

The word “bubble” was bandied about with some frequency during January in the back and forth over the prospects for – and the speed of – the economic recovery. Valuations are certainly high by traditional metrics, but to be fair the times we are living in are anything but traditional. Still, for those who want to dial back on their equity positions while still maintaining exposure to the markets, liquid alternatives provide a key option. The same holds true for bond investors concerned that January’s rise in rates may be more than a just a temporary blip.

Finally, there’s GameStop (GME), the struggling mall-based videogame retailer that erupted into the public consciousness at the end of the month. The wild trading in the stock introduced the broader world to the wild world of subreddits and seemed to offer a way to get very rich – or very poor – very quickly. At least one major hedge fund, Melvin Capital, was caught on the wrong side of that trade and needed rescuing. Everyone up to and including senior members of the Biden Administration seemed to have an opinion on the stock, the trading, or both.

While it would be easy to dismiss GME, AMC Entertainment (AMC), and the others as aberrations, they do provide a window on the latest developments in some corners of the retail market. No one can say for certain why this trading phenomena occurred.  Some have speculated that low- or no-cost trading, gamified apps that treat stock trading as a form of entertainment, and, possibly, the sheer boredom of being stuck at home during the pandemic have helped fuel interest in the markets (much as dot-com mania did two decades ago). These may have been contributing factors but at its core, the mission appears to have a populist element to it with smaller, retail investors sticking it to the traditional Wall Street players.

Regardless of the outcome of this, the margin calls and the temporary suspension of trading in GME on some platforms has highlighted a further issue: T+2 trade settlement. The two-day delay in settling the trades raised concerns about the ability – or willingness – of some investors to deliver the cash and pushed margin requirements up, attracting the attention of both Congress and the regulators.

Where this is heading, no one really knows. This time, the disruption was significant but the money involved was, in the context of the overall markets, relatively small. That may not always be the case.

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