The beginning of 2021 has already seen some wild intra-month swings. January saw the S&P 500 race ahead over 3% but ended the month down a bit more than 1%. For different reasons, February experienced a similar pattern as it also started the month strongly as the index rallied about 6% only to surrender over half its gain to finish the month up 2.78%. Well, we warned in our outlook publication that 1Q21 was going to be bumpy and it has not disappointed. Despite the overall market only being up only 1.5% year to date, the intra-market sector returns have been quite diverse with the top sector sectors of Energy and Financials being up 26% and 9.2%, respectively, while Utilities and Staples are down 7.4% and 6.7%. Thus, sector positioning has been critical and created opportunities to outperform the benchmark.

While equity returns in January had some headwinds because of the end of the month retail rebellion against the hedge fund’s favorite short positions, investors in February have to deal with the return of the bond vigilantes and the fears of inflation and rising interest rates. How are investors supposed to deal with such a challenging environment? We would continue to make the case that a disciplined, process-driven approach should help investors avoid being overly concerned with the constant noise from news headlines and less prone to the emotional responses in response to day to day volatility.

With that being said, our data driven proprietary methodology still suggests that investors should remained focused on the bigger picture and what will likely drive the U.S. equity markets during the entire course of 2021 and not only the next several weeks — a corporate profits recovery and the continuation of unprecedented accommodative monetary and fiscal policies. Importantly, our research process remains bullish and we still advising investors to view dips and tactically weak price periods as buying opportunities.