Market Week: December 21, 2020

The Markets (as of market close December 18, 2020)

Tech stocks and consumer shares opened last week on an upswing. Unfortunately, the rest of the market lagged. Investors faced the prospect of more stringent restrictions as COVID-19 cases continued to surge. The Nasdaq (0.5%) and the Russell 2000 (0.1%) posted gains, while the Dow (-0.6%), the S&P 500 (-0.4%), and the Global Dow (-0.2%) fell. Crude oil prices rose, although the energy sector dropped more than 3.5%. The dollar and 10-year Treasury yields declined. On the positive side, vaccines were rolled out in parts of the United States last Monday.

Stocks rebounded last Tuesday on news of the approval of a second virus vaccine and positive developments on additional fiscal stimulus. Each of the benchmark indexes listed here gained value, led by the Russell 2000 (2.4%), followed by the S&P 500 (1.3%), the Nasdaq (1.3%), the Dow (1.1%), and the Global Dow (1.0%). Treasury yields jumped higher as did crude oil prices. The dollar lost value. All of the major market sectors posted gains, with utilities, energy, and materials leading the way.

Investors got more encouraging news on movement toward a fiscal stimulus package as congressional leaders continued to negotiate last Wednesday. Mega-caps, retail, and information technology drove stocks higher as the Nasdaq (0.5%), the S&P 500 (0.2%), and the Global Dow (0.4%) advanced. The Russell 2000 (-0.3%) and the Dow (-0.2%) fell. Treasury yields dropped as bond prices rose. Crude oil prices advanced for the third consecutive day, while the dollar mostly declined.

Investors continued to ride the wave of hope for a new stimulus package before the end of the year. Both the S&P 500 and the Nasdaq reached record highs by the close of trading last Thursday, while the Russell 2000 (1.3%), the Global Dow (0.5%), and the Dow (0.5%) posted solid gains. Crude oil prices and Treasury yields rose, while the dollar fell. Among the sectors, real estate, materials, health care, and utilities led the way, while communication services and energy lagged.

Melissa MinterDecember 22, 2020

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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Market Week: December 21, 2020

Overview

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