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The first week of 2021 picked up much where 2020 left off, with the small cap Russell 2000 strongly outperforming both the S&P 500 and the Nasdaq 100. It seems as if the more speculative the investment the more outsized the returns are relative to other similar investments. For example, this week saw strong performance across the board from investments which benefit from higher inflation.

This morning I was thinking: what would Hunter S. Thompson have to say today? Here’s what I imagined…

Stock indices were up again this week, with small cap and technology stocks leading the way. The large-cap S&P 500 index was up 1.2%, bringing its December gain to 2.4%. More impressive has been the return of the Russell 2000 small-cap index. IWM, the ETF which tracks the performance of the Russell 2000, was up 2.63% this week and is now up over 7.8% for the month.

The market news this week centered around a number of huge initial public offerings. The two biggest were the IPO’s of Door Dash and Airbnb. In what has become more and more common, IPO’s of companies with a large retail user base have exploded higher out of the gates. On Wednesday, Door Dash’s stock price more than doubled its initial public offering price. Thursday witnessed Airbnb replicate Door Dash’s strong performance.

November’s remarkable run continued during this abbreviated week. We’ve had nearly a year’s worth of market returns in this month alone. For the year, the S&P is up around 15%, with just about 80% of that return occurring this month alone. The Dow Jones Industrial Average is on tap for its largest monthly percentage gain since January 1987.

The month of November has sure been kind to the stock market. Coming into the month we were beset with a multitude of unanswered questions that weighed on market sentiment. Now, nearly all the uncertainty has been removed. While the weight of the virus still hangs like an anchor around our necks, the prospects for a widely available vaccine in the near future lifts the market’s spirits.

Last week at this time the S&P was sitting close to the lows of the session and the market was down over 6% for the week. Fear over the election was escalating, and concern for rising virus cases had many market participants scaling back on risk assets. The market was having trouble digesting it all.

At current writing the S&P 500 is down over 1.75% on the day, bringing the week to date downturn to over 6.3%. Barring a late day, substantial rebound this will mark the worst week since March and the 4^th worst week of what has been a turbulent year. For the month, the S&P 500 is down over 3.5%, bring it close to down 10% from the highs set in early September. From a technical standpoint, the market action looks pretty poor.

After Monday’s nearly 1.5% selloff following a weekend with no progress on a potential stimulus bill, the market traded in a narrow range, offering little in the way of future directional indication. The market seems somewhat trapped at the current levels, unwilling to make any concerted effort to move in any one direction for fear that the next headline would kill the narrative.

The market rebounded sharply this week to finish with impressive gains across all major indices. The best performing of the US stock indices was the Russell 2000. The small cap index’s gain of 6.42% for the week help narrow some of the large performance disparity between it and the Nasdaq 100, which has been expanding over the last 12 months.