Bull Market Takes a Breather

On Monday, January 25, the S&P 500 and NASDAQ Composite overcame early losses to post new all-time highs.⁴

Stocks rode a roller coaster on Wednesday, falling sharply despite above-consensus earnings results, only to come roaring back the following day. Stocks suffered another broad retreat on Friday the 29, sending the major indices to their worst weekly performance since October.^4,5

Earnings continued to surprise to the upside, with 81% of companies in the S&P 500 that reported results by last Thursday morning exceeding analysts’ expectations.⁶

Earnings Season - What is it?

Every few months, you may hear the phrase “earnings season” as you listen to financial news.

But what exactly is “earnings season,” and why is it important to Wall Street?

Earnings season is the time when a majority of publicly traded companies release their quarterly financial reports. Companies often go into great detail about their business, and some may guide what lies ahead.

Typically, earnings season starts several weeks after the calendar quarter comes to a close. For example, the fourth quarter's earnings season began in mid-January, and the majority of companies expect to release their earnings over the next six weeks.⁹

In recent weeks, some market watchers have expressed concerns about stock-price valuations. Stocks are currently trading at about 23 times 2021 earnings, above the historical range of 15 to 17 times forward earnings.¹⁰

Expectations for a robust economic rebound may explain today's valuations; a rise in corporate earnings may accompany these. As earnings season gathers momentum, we’ll be able to see if the optimism is warranted.¹¹

Over the next few weeks, you can expect to hear some upbeat comments about the fourth quarter. But brace for some negative reports. If you hear some confusing commentary, please give us a call. We'd welcome the chance to talk about what earnings are saying about the overall economic outlook.

February: Key Economic Data - Dates We're Watching

Monday, 2/1: Institute for Supply Management (ISM) Manufacturing Index.
Wednesday, 2/3: Automated Data Processing (ADP) Employment Report. Institute for Supply Management (ISM) Services Index.
Thursday, 2/4: Jobless Claims. Factory Orders.
Friday, 2/5: Employment Situation Report.

^{Source: Econoday, January 29, 2021
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

What’s going on with GameStop and other “meme stocks”?

The mix of social media, mobile trading apps, and free trading have revolutionized some aspects of the market. Here’s a brief overview of this emerging phenomenon.  

Let’s get the tendies 🐔.  Diamond hands 💎 ✋. Rocket to the moon🚀 🌕. Apes Together Strong🐵.

Those are common headlines in posts on one of the most popular online investing forums right now. A website called Reddit allows people to post about various topics. Related topics are grouped to form a community (known as a subreddit). There are communities about almost anything, such as cooking, positive news, plumbing, running, legal advice, cats (because it’s the internet), and various areas of finance. A community known as “Wallstreetbets” (Wall Street Bets) has surged in popularity and is at the center of this story. It grew in membership from about 450,000 members in January of 2019 to over 1.3 million this year. It was initially known for people posting about very speculative and risky trades. Screenshots of large profits and losses are commonplace.

Here’s where GameStop (trading symbol GME) comes in. It is a physical brick and mortar store that primarily sells video games. While there are other “meme” stocks, this is the main stock grabbing headlines right now. There are some nuances to this, but we’ll focus on the big picture.

You could buy a share of GameStop for about $4 a year ago. Some people figured out that a hedge fund had bet against the stock using publicly available data. Betting against a company’s stock is called shorting. The bet against GameStop was substantial (over 140% of the available shares people could buy).

Some people on Wallstreetbets thought that the company had potential, the stock was undervalued, and the business could improve. They bet the stock would go up (bought shares of the stock and other trading instruments known as options) while the hedge fund betted the stock price would go down.

With the power of social media’s ability to spread information, more and more people found out about this situation. They began betting the stock would go up, causing the price per share to increase dramatically. In January this year, the stock went from about $17 a share up to $347 at one point. That’s a 1,941% increase in less than one month. As a reminder, an online savings account would pay about 0.004% in the same time frame. $100 invested in GameStop would have grown to $2,041 in a month!

GameStop Share Price in 2021.

Source: Yahoo Finance

When you bet against a stock and the price rises, you lose money. If it rises enough, the brokerage and investment firms that process trades require you to put more and more money in as security against your bet as your losses accumulate. Eventually, the investment firms require you to stop betting against the stock and pay up. This concept is called a “short squeeze,” and there are some technicalities to it, but that’s the big picture.

This story has been framed as a David (everyday investors) versus Goliath (Hedge Funds & “Wall Street”) and has taken the investing world by storm. As the price per share climbed dramatically, companies that allow individuals to trade stopped allowing people to buy GameStop stock. This is controversial as the large institutions were able to trade while the individual investors could not. The SEC, which regulates financial markets, has said it is watching the situation closely.

Many people acknowledge that GameStop is a “bubble,” and the stock will come tumbling down. There will be a point when someone is left holding the stock as it plummets back down to reality. In fact, as of today, the share price has dropped from a high of $347 to $90 a share. In the meantime, though, there have been some eye-popping profits made. One of the original people behind this trade invested $53,000 in options back in 2019, and it has grown to over $22.8 million. Not only are people investing hoping to make money, but some are doing so supposedly out of principal to force hedge funds to pay up. So far, the strategy seems to be achieving the desired goal. The hedge fund company that placed a large bet against GameStop was losing badly and received $2.75 BILLION from other hedge funds to help it avoid bankruptcy.¹ 

There are some grey areas around this situation as well. It is illegal to buy a stock, then try to boost its popularity with false, misleading, or exaggerated statements to increase the price and then sell it to profit. That’s called a “pump-and-dump” scheme and is market manipulation. There are also accusations that some of the people commenting in the forum are fake accounts called “bots” and are posting misleading information. Others argue that hedge funds and “big money” have manipulated the market in various ways for decades. Only now that it is benefiting individual investors and hurting a hedge fund do people care or pay attention to it. As of right now, however, there is no evidence of fraud or insider trading.

This is a historical moment in the stock market. Never in history have we had such easy access to data, the ability for it to spread virally on social media, the ability to trade for free, and being able to do so with a couple of clicks on an app on your smartphone wherever you are in the world.

The government may try to add new regulations in place, brokerage firms that allow people to trade may create new policies and procedures, money managers and hedge funds will likely change how they trade, and many traders and investors will monitor this and other forums from now on.

While we do not recommend buying “meme” stocks as a prudent, long-term investment strategy, we will continue to keep an eye on the markets and this story as it unfolds. Hopefully, the eventual fall of these stocks does not trickle into other areas of the market.

1. Citadel, Point72 Back Melvin With $2.75 Billion After Losses (yahoo.com)

Show Your Heart Some Love

February is American Heart Month. Heart disease is the number one killer of men and women in the U.S., accounting for 25% of all deaths. While genetics and family history are primary risk factors of disease development and survival, some lifestyle factors are associated with better heart health. But first, make sure to discuss any medical concerns with your health care provider before beginning any dietary and fitness regimen. The following information is not a substitute for medical advice:

• Manage your blood pressure: Make sure to get your blood pressure checked regularly. Hypertension is often asymptomatic.
  
  
• Maintain a healthy weight: Being overweight or obese may increase disease risk.
  
  
• Eat well and exercise: These two activities are associated with a lower incidence of heart diseases.
  
  
• Drink less alcohol and don’t smoke: These habits are seen more frequently in heart disease patients.
  
  
• Sleep well and reduce stress: Lower cortisol levels may reduce your risk for heart diseases.

While not all risk factors are controllable, some are. The list above is not comprehensive. Give your heart some love this month and talk to your doctor about the best ways to care for it.

Tip adapted from MedlinePlus.gov⁸

What we are working on here at GTS:

After a very eventful month (understatement), we are assessing our own healthy habits and making some changes.

Tyler is making an active decision to add more raw vegetables into his lunches 🥦 - Crunch! 

Stacey is making efforts to increase her daily water intake 💧 - Drink up, girl! 

Grant is making gains on his quest for consistent sleep 😴 - Thankfully not at his desk!

What are you working on? 

Taking A Side Gig? Here’s How It May Affect Your Taxes

Taxpayers who work in the gig economy may benefit from having a better understanding of how their work affects their taxes.

What exactly is the gig economy? The gig economy also is referred to as the on-demand, sharing, or access economy. People involved in the gig economy earn income as a freelancer, independent worker, or employee. They use technology to provide goods or services. This includes activities like renting out a home or spare bedroom and providing car rides.

Here are some things taxpayers should know about the gig economy and taxes:

• Money earned through this work may be taxable.
  
  
• There are tax implications for both the company providing the platform and the individual performing the services.
  

This income may be taxable even if the taxpayer providing the service doesn't receive a Form 1099-MISC, Form 1099-K, or Form W-2. This income may also be taxable if the activity is only part-time or side work, or if you’re paid in cash.

If you are thinking about changing jobs or adding a second job, please reach out and let us know! We want to help you make smart choices with your money. 

Tax Refund Chart Can Help You Guess When You’ll Receive Your Money In 2021

From Forbes.com: Tax Refund Chart Can Help You Guess When You’ll Receive Your Money In 2021 (forbes.com)

The Internal Revenue Service (IRS) has announced the open of the tax filing season. That date is February 12, 2021. If you want to get your refund as fast as possible, the IRS recommends that you e-file your tax return and use direct deposit (be sure to double-check those account numbers before you send your return). 

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁷

Four tips to help you save money

Whether shopping in person or online, there are some easy ways you can save some money. Read on to discover four tips to try before you swipe that card.

#1 - It’s too obvious to work:

After dropping my kids off at daycare, I was driving to work when a big red light suddenly goes on in my dashboard saying I have low brake fluid. Being able to brake is generally a good thing, so I made my way to the mechanic’s shop I trust. Thankfully, I was only a few blocks away, and my brakes were still functional for the moment.

As I sip the “free” coffee and watch the news, I know there’s likely a large repair bill lurking around the corner. When I see the service associate approaching, I’m pretty sure the “duh-duh” of the Jaws movie played overhead.

He proceeds to tell me everything that needs to be repaired and then gives me the total. “OK,” I think to myself, “time to pull out the super, top-secret negotiation technique.”

I tell Kevin (we’ll keep his real name confidential) that I have been a customer there for a while (which was true). “In the past, when I’ve had unexpected repairs, I’ve been given a 10% discount.” I then ask if he will honor that. Then, I stop talking.

Get this – here’s what he says: “Sure, no problem!”

Chalk up one more win for the super, top-secret negotiation technique of - just ask for a discount.    

Yes, it is that simple. You’d be amazed at how many times I’ve asked for discounts and saved hundreds of dollars.

You can increase the odds of success by adding in a key sentence or two before the ask. Two strategies to try are to hold them to a standard their company has (like being offered discounts in the past) or empathize with them and put yourself in their shoes. If you acknowledge where they are coming from, it will help your odds of success.

Here are some examples:

• I’m sure people ask you this all the time but are there any discounts available?
• I don’t want to bother you, but are you able to discount this at all?
• It’s been a long day, and you are being very generous with your time. Would it be terrible of me to ask for a discount?
• Your company has a policy of offering the best price, are you able to provide a discount?

Here’s the subtle art to this technique - it’s the pause after you ask.

Once you get over the potential discomfort of asking for a discount, you need to work on Not. Saying. Anything.

Be OK with the silence. 

You can use this technique in many situations in life, good luck!

P.S. If your repair is not urgent and you’re able to shop around, leverage the power of the internet. Many websites give you estimates for various repairs. Try googling your car repair to get an idea of a reasonable price to protect yourself from paying too much.

#2 – Secret codes:

There are a few ways to uncover a discount code.

• Many online stores have a place to put in a discount code at checkout. However, before you finish checking out, try searching on Google for coupon codes first. If you use a computer with Microsoft Edge as a browser, it now searches for coupons automatically and will let you know of any potential discounts as well.
• Several websites offer discounts to people the first time you visit their website. The discount is usually dependent upon you giving them your e-mail address. Like many of you, I keep a second email account or 'junk e-mail' account to use for this purpose.
• Try visiting the website in your web browser’s private or incognito mode. Why? When browsing in this mode, the code that websites use to track you isn’t stored, and the website will think you’re a first time visitor. You may be offered discounts that you wouldn’t have seen if you were re-visiting the website the traditional way.

           ASK GTS: If you have not used the private or incognito mode before - Ask us! We will walk you through it!

• I’ve also used the “chat now” feature on many websites to ask for discount codes and have had some success that way as well.

#3 – Abandonment:

Often, companies use software to monitor your online shopping actions on their site. One common thing they track is if you’ve placed items in your shopping cart but 'forget' to check out. They may offer discounts to incentivize you to complete the purchase if you don’t check out for a day or two. Next time you buy, try putting things in your cart and then wait a day before you checkout to see if you’ll get any discount offers.

#4 – The free trial:

Software or services will offer free trials, hoping you enjoy the program or service and you’ll continue using it or forget to cancel before the trial ends.

If there is a free trial offer, I sign up for it and place a reminder in my calendar. Then, before the trial ends, I try to cancel the license or membership, even if I think I may use the service long-term. When trying to cancel, I’ve been offered discounts.

Hopefully, you’re able to take advantage of some or all of these tips! Happy savings.