Market Week: December 7, 2020

The Markets (as of market close December 4, 2020)

November closed on a sour note as investors took profits from stocks last Monday. The Russell 2000, which gained more than 18.0% in November, fell nearly 2.0% on the day. The Global Dow dropped 1.7%, followed by the Dow (-0.9%), the S&P 500 (-0.5%), and the Nasdaq (-0.1%). Treasuries and the dollar advanced, while crude oil prices fell. Health care and information technology were the only market sectors to post gains. Energy, financials, industrials, and utilities each dropped at least 1%.

Stocks rebounded last Tuesday to start December off with a bang. Renewed hope for a stimulus deal and the growing potential of a COVID-19 virus vaccine added to investors' confidence. The S&P 500 and the Nasdaq reached record highs by the close of trading. Communication services, financials, real estate, and information technology led the sectors. The dollar slid to its lowest level in more than two-years. Crude oil prices fell, but Treasury yields advanced. Among the benchmark indexes, the Global Dow added 1.4%, followed by the Nasdaq (1.3%), the S&P 500 (1.1%), the Russell 2000 (0.9%), and the Dow (0.6%).

The S&P 500 hit another record last Wednesday as stocks closed generally higher for the second consecutive day. The Global Dow continued to surge, climbing 1.5%, followed by the Dow (0.2%), the S&P 500 (0.2%), and the Russell 2000 (0.1%). Only the Nasdaq ended the day slightly in the red, falling a mere 0.1%. Treasury yields and crude oil prices rose, while the dollar sank. Energy led the sectors, advancing over 3.0%. Financials and communication services each gained more than 1.0% on the day.

Stocks were mixed last Thursday as energy, industrials, and real estate advanced, while materials and utilities sunk. The Global Dow climbed 0.7%, the Russell 2000 gained 0.6%, the Dow and the Nasdaq edged up 0.3% and 0.2%, respectively. The S&P 500 declined 0.1%. Treasury yields and the dollar declined, while crude oil prices rose nearly 1.0%.

Melissa MinterDecember 9, 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 7, 2020

Overview

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