The first month of 2021 was pretty volatile. While stocks were at their all-time highs in the first part of January on optimism over more stimulus from Washington (thanks to Democrats’ hold over Senate and Biden’s inauguration), the surge in coronavirus cases and some downbeat economic data points as well as the retail trading frenzy in some specific stocks in the month-end led to an imbalance the market momentum.
Overall, the S&P 500 and the Nasdaq Composite added about 0.5% and 4% past month, respectively, and the Dow Jones lost about 1.3%. However, small caps were still a winner as the Russell 2000 ETF
(gained 4.8% past month (as of Feb 1, 2021). IWM Quick Quote IWM - Free Report)
Against this backdrop, below we highlight the top ETF stories of January that should be kept track of in February.
Marijuana ETFs on a High; To Sizzle Ahead
Shares of major cannabis stocks rallied on Democratic victories in Georgia’s two runoff elections. Biden’s victory and Democrats’ hold on Senate could speed up the legalization of marijuana at the federal level, thereby providing a boost to the U.S. cannabis industry. Five states also legalized marijuana through ballot measures last year. A slew of financing deals and strong earnings reports also added fuel in the already-surging pot stocks.
Global X Cannabis ETF ( POTX Quick Quote POTX - Free Report) (up 48.8% past month), Amplify Seymour Cannabis ETF ( CNBS Quick Quote CNBS - Free Report) (up 37.8%) and The Spinnaker ETF Series Cannabis ETF ( THCX Quick Quote THCX - Free Report) (up 37.1%) were the toppers in the space.
Marijuana stocks also started February on a strong note with MJ gaining 9.8% on Feb 2 and POTX and CNBS adding 12.6% and 8.2%, respectively. The latest surge came on the heels of the news that
three Democratic senators led by Majority Leader Chuck Schumer said they would make reform legislation a key consideration in the current Congress, boosting hopes for a federal legalization. Clean Energy ETFs Shine
This is another beneficiary of Democrats’ control on the Senate and Biden’s inauguration as the U.S. president. Climate change is one of the top priorities of the Biden administration. Biden already cancelled Keystone XL Pipeline and rejoined Paris Climate Agreement. Notably, Paris Climate Agreement is the international treaty designed to counter a disastrous global warming.
Biden ordered federal agencies to start reviewing and reestablishing more than 100 environmental regulations that were weakened or canceled by Donald Trump. No wonder, clean energy ETFs soared.
SPDR Kensho Clean Power ETF ( CNRG Quick Quote CNRG - Free Report) (up 24.5% past month), Wilderhill Clean Energy Invesco ETF (PBW) (up 19.8%) and Alps Clean Energy ETF (ACES) (up 17.8%) were among the notable winners.
If we take cues from marijuana trading, clean energy should also be in fine fettle as the month will see Democrats’ progress on key policy issues.
Retail ETFs Rally on Reddit’s Bet on GameStop
The world's largest video game retailer —
GameStop ( GME Quick Quote GME - Free Report) — has become one of the most-heavily traded stocks of this year. The stock rallied more than 1,000% in the past month on a bunch of Reddit users’ bet. Reddit’s “Wall Street Bets” forum popularized the stock as a value investment that pushed GME shares to as high as $483 on Jan 28 from $17.25 at the start of the year. SPDR S&P Retail ETF ( XRT Quick Quote XRT - Free Report) added 22.2% past month. GameStop acts as the top firm of XRT accounting for 12.4% of the portfolio. Other winners of the GameStop story are Purefunds Video Game Tech ETF (GAMR) (up 17.8%), Invesco S&P Smallcap Value With Momentum ETF (XSVM) (up 16.3%) and S&P Smallcap Consumer Discretionary Invesco ETF (PSCD) (up 19.7%). However, with GameStop stock staging a freefall on Feb 2, investors should be cautious about the future rally in the above-mentioned ETFs. Biotech Bounces Back
The sector rebounded in January on vaccine hopes. While markets have already priced in the upbeat vaccine news of Pfizer, Moderna and AstraZeneca, January welcomed another encouraging vaccine update from
Novavax recently announced updates on its protein-based COVID-19 vaccine candidate NVX-CoV2373. Per management, the vaccine candidate met the primary endpoint, delivering an efficacy of 89.3%, in its Phase 3 clinical trial conducted in the United Kingdom.
ETFMG Treatments Testing and Advancements ETF (GERM), which gained 34.6% past month, has exposure to Novavax.
However, with Novavax gaining so much so far, it may see a decline (or a subdued increase) in share price in February. This might result in a moderate increase in GERM.
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