Market Recap: January 2021

Despite entering 2021 with elevated long-term valuations, near term financial market conditions remained favorable for risk assets. While a large portion of last year’s run-up can be attributed to significant stimulus/intervention (both fiscal and monetary) as well as positive vaccine developments, many investors may not realize how positive fourth quarter earnings have been thus far. Equity valuations, particularly on the U.S. side, remain elevated to historical multiples, but the strong rebound in corporate earnings is a very notable development.

Democrats control Congress.

Georgia’s special election results cemented Democrat control of the Senate and cleared a path for President Biden’s $1.9 trillion stimulus plan. In the wake of COVID-19, coordinated fiscal and monetary policy will likely support economic growth and result in strong corporate earnings growth in 2021.

SPACs

Special Purpose Acquisition Companies or (SPACs) seem to be at the center of the IPO market right now. These are somewhat unique in that it’s a structured blind pool yet openly traded. Below we’ve put together some educational bullets to provide some background on these investment vehicles:

Blank check company that raises capital with the intention of making an acquisition, effectively bringing a company public through a merger versus the traditional IPO process.
This is not the first 15 minutes for SPACs which initially appeared in the 1990s, which had a run leading up to the financial crisis ($12B of SPAC IPO in 2007, Source Winston & Strawn). Structure has been altered over time, but the overarching idea has remained the same.
Investors in the IPO shares typically receive their share and a warrant or fraction of a warrant that is exercisable assuming good stock performance within a certain period of time.
According to Citi, in their Dec 2020 SPACs Monthly Update, SPAC issuance was up 4x in 2020 compared to 2019. Globally there are 234 SPACs, with $77.5 billion in dry powder, in the process of identifying acquisition targets.

Bitcoin and Crypto

While the recent news around crypto has been seemingly positive it continues to be a very risky market. Characteristics around bitcoin and other cryptos include but are not limited to the following:

No circuit breakers
No regulators
Your coin (or the custodian can be hacked)
It is an open market 24/7
Subject to meaningful bouts of trading and FOMO (Very volatile)
Crypto miners and other crypto-related entities continue to have to scale operations and pour heavy infrastructure costs

It is most certainly an interesting space to watch evolve but there are simply to many unknowns surrounding the use of crypto. At any moment, a government can seemingly ban the use of such currency like India.

Please let us know what else we can do to serve you. We look forward to continuing to help all of our clients plan for and achieve their financial objectives.

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This material is for informational purposes only and is an overview of the capital markets and is intended for educational and illustrative purposes only. It is not designed to cover every aspect of the markets and is not intended to be used as a general guide to investing or as a source of any specific investment recommendation. Readers should conduct their own research before making any investments. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. In preparing this material we have relied upon data supplied to us by third parties. The information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by US Capital Wealth Advisors, LLC, as to its accuracy, completeness or correctness. US Capital Wealth Advisors, LLC does not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regard to the results obtained from its use. Opinions included do not necessarily represent the views of US Capital Wealth Advisors, LLC. Please see USCWA’s ADV Part 2 for more information about USCWA.