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Market Watch Weekly |6 February 2021| A Silver lining

Aarinder Lidder - Feb 07, 2021

Welcome to our weekly newsletter, it’s been an interesting week, there has been a lot of volatility and a lot of headlines with people who probably weren’t partially interested in investments before last week who have seen the headline surround the share price of Game Stop and one and two others and speculation in markets.

The name of Robin Hood has been featured on the news more than I can remember so markets became nervous last week. There was a lot of volatility and we saw stock markets starting to sell off into the month end. It raised the question of whether we were going to finish the month on a negative note. 

The army of retail investors that were seemingly trying to bankrupt hedge funds, the trades almost got cancelled by the likes of Robin Hood and other brokerages clamping down on the number of trades and shares that people could purchase on particular shares namely GameStop being one.

That was partly because the brokerages like the brokers themselves were in danger of actually going bust so Robin Hood for example, they had to raise billions of dollars more funding to ensure that they could remain liquid with the volume of trades.

This is a quirk of the way that trading platforms work, but it meant that they almost become a victim of the success that they have. The army of retail traders almost caused Robin Hood to collapse. We had a period of volatility but then once those trades were starting to be limited of course it got a bad press that started to bring the price of some of those stocks that were being speculated upon started to bring those down.

We started to see the trades start to wane from the lack of enthusiasm and many throughout it keep pushing back against the hedge funds that were short in the markets, it meant that we saw the fear index; the VIX start to fall. It broke above 31 last week and it's back down to around 24 now and so there was a bit more normality started to return to investment markets.

There was a silver lining and by that I don't mean necessarily anything positive but over the weekend fresh from their enthusiasm and attempts to drive Game stop share price even higher and ever higher. The Reddit users started to focus on the silver market. There is a school of thought that the silver market is artificially suppressed compared to the gold price and so they were trying to push up higher to try and effectively cause problems for several investment banks. We therefore saw a spike in the price of silver it started to rally but again they started to run out of steam so slightly different market and the there aren't a lot of short bets on that market for example unlike on GameStop.

The trade started to reverse very quickly within 24 hours, and we saw the price spike and then it starts to pull back. Gold mirrored to a lesser extent if you recall that silver and gold do tend to trade similarly but silver is much more amplified.

We saw gold rally this week and pull back so we saw commodities some interesting moves on precious metals so that is another thing you would have probably seen headlines around this week. It's all related to this retail trade that cause a lot of nervousness that seems to be dying down which means that the reflation trade that we saw, the opening up of the global economy the bets on that started to re-emerge so people started by back into those growth plays, particularly technology stocks and of course the technology stocks have done relatively well this week as well because earnings reports came out for Amazon and they also came out for Google or Alphabet as the parent company is known. We also had Apple a week before. Those tech earnings were on the whole very good I mean alphabet recorded record profits while Amazon actually had a first 100 billion revenue quarter, so these are earnings for Q4 of last year.

That has helped buoy technology stock prices don't forget that part of the retracement that week before was obviously markets were getting nervous about what retail investors were doing but they started to question some of the valuations of technology stocks and so technology stocks were badly hit the previous week. What it means is that we've seen a rebound in markets in the US in particular where a lot of these tech stocks reside and the S&P 500 bounce back from its sell off the previous week in it's up from its low of the week about 3%.

This means it's almost recoup those losses that was sparked by the volatility in the uncertainty surrounding the GameStop trade. However, industries are starting to pick back up. The reflation trade is starting to pick back up again so we're starting to see things that had done well in the majority of January which includes emerging market indices for example and Asian stocks which had led the main global equity indices. They have also rebounded and started to do very well again.

So one of the things I think people should remember last week there seemed to be a lot of nervousness I even got emails from people starting to ask me is this the beginning of the end, are we in for a big turn in equity markets. Now I don't know the answer to that, nobody does, however it can all be used to your advantage and if you are not receiving communication from you investment specialist on how to take advantage of these types of situations then perhaps it is time to talk to someone who is.

We're seeing commodities start to pick up as part of that reflation trade again so be interesting to see what happens in the coming days and weeks ahead and as I probably mentioned on last week's show or at least alluded to February tends to be a pretty nervous time in equity markets it's a week month traditionally particularly in the year following a US election so don't be surprised if we actually get a surprise in equity markets in the next couple of weeks.