Market Week: December 28, 2020

The Markets (as of market close December 24, 2020)

Stocks rallied by the end of the day last Monday, paring losses from a morning plunge. Strength in bank stocks and financials helped stem the tide as the other major market sectors generally sank. Investors were hit with news that a new strain of the COVID virus was moving rapidly through the United Kingdom, prompting a major sell-off in European stocks. Crude oil prices and Treasury yields fell, while the dollar advanced.

The Nasdaq reached another record high last Tuesday and the Russell 2000 gained 1.0%, but the remaining benchmark indexes ended the day in the red. The Dow closed down 0.7%, the Global Dow dropped 0.4%, and the S&P 500 lost 0.2%. Information technology and real estate were the only sectors to post gains. Similar to the previous day, Treasury yields and crude oil prices decreased, while the dollar rose.

Energy and financials drove the market higher last Wednesday. The S&P 500 ended a three-day losing streak, but just barely, eking out a 0.1% gain. The Global Dow climbed 1.0% after an outline of a post-Brexit trade deal was reached. The Russell 2000 advanced 0.9% and the Dow closed 0.4% higher. The Nasdaq fell 0.3% on the day. Treasury yields and crude oil prices gained, while the dollar fell.

The stock market closed early last Thursday in observance of Friday's holiday. Equities were mixed on the day, with the S&P 500, the Nasdaq, the Dow, and the Global Dow posting gains, while the Russell 2000 lost value. Crude oil prices advanced, while Treasury yields and the dollar dropped. Utilities, real estate, materials, and information technology were the only sectors that gained more than 0.5%.

Melissa MinterDecember 28, 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 28, 2020

Overview

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