Financial Market Update
Welcome to the StrategicPoint Financial Market Update — a market and economic overview of what occurred last week and what’s up for this week. Please find our market commentary and most recent Blog posts in our StrategicPoint of View®.
Stocks jumped to record highs last Monday after President Trump signed a pandemic relief package into law. The S&P 500, the Dow, and the Nasdaq closed the day at record highs as investors saw the stimulus relief as a boost to economic recovery. Only the small caps of the Russell 2000 failed to advance, ending the day down 0.4%. Treasury yields rose, crude oil prices fell, and the dollar was mixed. Several market sectors climbed higher, led by communication services, consumer discretionary, and information technology.
Equity indexes gave up early gains last Tuesday, ultimately closing lower. The Russell 2000 fell 1.9%, followed by the Nasdaq (-0.4%). The Dow and the S&P 500 dropped 0.2%. The Global Dow gained 0.4% on the heels of last week’s trade deal between the United Kingdom and the European Union. Crude oil prices and Treasury yields advanced, while the dollar declined. Consumer discretionary and health care were the only major market sectors to post gains on the day.
Investors reacted positively to the passage of the latest round of fiscal stimulus in the hopes that it will give the economy a boost entering 2021. Each of the benchmark indexes posted gains last Wednesday, with the small caps of the Russell 2000 outperforming large caps and tech stocks. Treasury yields fell as did the dollar, while crude oil prices advanced. Among sectors, energy, industrials, financials, and materials performed the best, while communication services fell.
The last day of the month and year saw both the S&P 500 and the Dow close at record highs. Utilities, financials, real estate, and health care all gained more than 1.0% on the day. Treasury yields, crude oil prices, and the dollar closed up by the end of trading last Thursday.
The last week of December and 2020 was generally a good one for stocks. Only the small caps of the Russell 2000 failed to post a gain. The remaining benchmark indexes closed ahead, led by the S&P 500, followed by the Dow, the Global Dow, and the tech stocks of the Nasdaq. Stocks recovered in fine fashion from their COVID-impacted drop, as each of the indexes listed here closed well ahead of their 2019 year-end value, led by the Nasdaq, the Russell 2000, the S&P 500, the Global Dow, and the Dow.
Crude oil prices ended the last week of the month and year slightly higher, closing at $48.43 per barrel by Thursday afternoon, up from the prior week’s price of $48.23 per barrel. The price of gold (COMEX) closed last week at $1,901.70, up from the prior week’s price of $1,883.20. The national average retail price for regular gasoline was $2.243 per gallon on December 28, $0.019 higher than the prior week’s price but $0.328 less than a year ago.
S&P 500: 3756 (up 1.43% for the week and up 16.26% for the year)
NASDAQ: 12,888 (up 0.65% for the week and up 43.64% for the year)
Dow: 30,606 (up 1.35% for the week and up 7.25% for the year)
US Treasury 10yr: 0.91% (from 0.92% last week)
Crude Oil (February): $48.52 (from $48.23 last week)
Gold (January): $1,895.10 (from $1,883.20 last week)
USD/Euro: $1.2216 (from $1.2197 last week)
StrategicPoint of View®: 2021 Market Outlook
When my clients ask me for my 2021 Market Outlook, I gently laugh and say, “Well, let’s hope it is more accurate than last year’s.” On January 6, 2020 I noted that the upcoming year would likely be a “decent one” for the US economy. At the time, that statement seemed like a pretty safe bet.
I recently heard that there is a movement afoot to do away with market outlooks, since they are so ephemeral and, at least in 2020, were so inaccurate. But outlooks are important. After all, many of us who are investment managers, base their portfolio positioning on the facts and figures underlying these outlooks. When our economic outlook changes, so does our view of risk, and adjusting portfolios to manage risk is what we do. So, I offer up my market commentary on our current investment outlook, with the caveat — like New Year’s resolutions, it will need refinement.
But first a little backdrop:
StrategicPoint started last year (2020) with our portfolios in a somewhat defensive position. While our equity allocation was neutral for all of our models, some of our equity funds were designed to mitigate volatility while others focused on growth. At the time we felt that 2020 was going to be a decent year for the economy. The (then) recovery was getting long in the tooth, and we wanted to add a bit of caution to our portfolios. We weren’t thinking about a pandemic. Its arrival only added to our view of heightened portfolio risk. In a sense we were a bit lucky, only having to make a few careful changes to the portfolio as the pandemic unfolded.
Broadly characterized, last year the economic outlook was one of a series of uncertainties. Risks were high, even as the stock market looked beyond the challenges of the present. By the end of the year, however, one by one the risks were replaced with greater clarity.
The boxes we had checked included 1) the determination of the 2020 presidential winner 2) promised continued monetary support from the Federal Reserve 3) better than expected corporate earnings 4) a relief package designed to bolster those who had fallen behind 5) two vaccinations that were deemed effective in combatting COVID 19.
As we reviewed the data, we uncovered other positive news: personal bankruptcies are actually down compared with previous recessions, thanks to the CARES ACT, while innovation has accelerated (just look at the healthcare field) and business start-ups are ahead of schedule. In addition, many people have added to their savings as a result of last year’s mobility restraints. Increased savings sets the stage for unleashed pent up demand, as the virus gradually gets under control and consumers reclaim old spending habits.
In December, as a result of the changing economic outlook and a reduction of known risks, our portfolio committee added to our equity holdings in each of our models and prepared to rotate into more cyclical sectors of the economy that can benefit from a strong economic rebound. Thus, we started the year with the view that 2021 could truly herald better times for Americans.
But what would an outlook be without the naming of new risks? Here are a couple of mine:
My first concern is that the virus outsmarts us. Until and unless we have a successful and ongoing vaccine inoculation program, a future mutation of the virus could grab a foothold in our society and prevent us from fully experiencing normalcy. While I suspect we might never rid ourselves of COVID completely, we still need to manage the virus sufficiently in order to fully allow our economy to recover.
My second concern is that we might not finish what we started. Last spring’s CARES ACT and December’s Consolidated Appropriations Act of 2021 were designed to help keep individuals and families afloat until the economy turns the corner and the virus is controlled. The goal has been for the US to come out of this pandemic crisis as economically strong as we were when we went in, being mindful that the virus has not punished Americans equally.
As of this writing, there are still close to 10 million more people unemployed now than before the pandemic started and 2.3 million more people who are below the poverty level than were in February. We have also seen an increase of 2 million more delinquent mortgages since the start of the pandemic and many more people behind in rent. I fear we may strand those disadvantaged by COVID approximately 90% of the way across the fiscal bridge to the post-pandemic world. We need to continue to find ways to shore up the unemployed, low-paid workers and small businesses to give us all an opportunity on the other side.
And finally, like many people, I worry about the growing federal debt due to recent tax cuts and this year’s pandemic relief spending. While the mountain of debt is unlikely to haunt us this coming year, and probably not until higher interest rates have set in, it is not too early to begin addressing this potential problem. (I am also not a fan of modern monetary theory as artfully explained in our Novice and the Nerd’s recent podcast.) A powerful way to alleviate debt distress is through strong, economic growth. I am hopeful that our country will use the opportunity of this recovery to spur growth by investing in jobs and businesses. Whether this investment is through retraining, infrastructure spending, alternative energy advancement, healthcare research and innovation or other forms of large and small capital expenditures, these efforts can strengthen the economy and, more importantly, promote its sustainability.
There is much our country can do in the coming year to repair the damage from the pandemic and fulfill 2021’s promise of a new, brighter beginning. And when you ask me next January what our outlook for 2022 will be, I hope to be able to say, “As good as last year’s and maybe better.”
Betsey A. Purinton, CFP®
Chief Investment Officer
The employment figures for December are out this week. There were 245,000 new jobs added in November, well below the October and September totals. Also out this week are the December purchasing managers’ surveys for manufacturing and services. Growth slowed in both manufacturing and services sectors in November.
The Novice and The Nerd Podcast: Tesla & Joining the S&P 500
On this episode of the Novice and the Nerd, we discuss the spike in Christmas tree sales, the potential future of Movie Theatres, and what Tesla joining the S&P 500 means for the stock market.
The Housing Market Is On Fire, Is It 2007 All Over Again?
One of the shining spots in the US economy right now is the housing market. But should we be concerned about another 2007? Read our latest blog by Derek Amey to see what he thinks!
*Past performance is not indicative of future results. Indices are unmanaged and you cannot directly invest in them. The Nasdaq Composite Index measures all NASDAQ U.S. and non-U.S. based common stocks listed on the Nasdaq Stock Market. The S&P 500 index is based on the average performance of 500 industrial stocks monitored by Standard and Poor’s. The data referred to above was taken from sources believed to be reliable. StrategicPoint Investment Advisors has not verified such data and no representation or warranty, expressed or implied, is made by StrategicPoint Investment Advisors.
Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Third party content does not reflect the view of the firm or of our parent company, Focus Financial Partners. LLC and is not reviewed for completeness or accuracy. It is provided for ease of reference.
Parts of this report were prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020. Part of this content contributed by Forefield, Inc.