Market Week: January 19, 2021

The Markets (as of market close January 15, 2021)

Last Monday, the major benchmark indexes pulled back from record highs reached the prior week. Tech stocks took the biggest hit, dragging the Nasdaq down by 1.3%. The S&P 500 lost 0.7%, followed by the Global Dow (-0.5%) and the Dow (-0.3%). The Russell 2000 closed the day where it began. Treasury yields and the dollar pushed higher, while crude oil prices fell marginally. Investors were confronted with several states reporting record-high COVID-19 cases. Growing pandemic worries, plus concerns over inflated stock valuations, drove stocks lower. Among the sectors, energy posted a solid 1.6% gain, followed by health care and financials. The remaining market sectors sank, led by consumer discretionary (-1.9%), communication services (-1.8%), and real estate (-1.7%).

Stocks rebounded last Tuesday, driven higher by a surge in several sectors including energy, consumer discretionary, industrials, materials, and financials. The dollar fell, Treasury yields advanced, and crude oil prices reached an 11-month high. Among the major indexes, the Russell 2000 posted the highest return (1.8%), followed by the Global Dow (0.7%), the Nasdaq (0.3%), the Dow (0.2%), and the S&P 500, which essentially broke even.

Equities were mixed last Wednesday, with the Nasdaq, the S&P 500, and the Global Dow posting modest gains, while the Dow and the Russell 2000 lost value. Utilities, information technology, and real estate outperformed among the sectors. Treasury yields dropped for the first time in several trading sessions. Crude oil prices sank more than half a percent, while the dollar advanced.

Stock returns were mixed last Thursday as the anticipation of additional stimulus was muted by disappointing unemployment figures. The small caps of the Russell 2000 surged by 2.1% and the Global Dow gained 0.5%. Otherwise, the S&P 500 (-0.4%), the Dow (-0.2%), and the Nasdaq (-0.1%) lost value. Yields on 10-year Treasuries climbed by nearly 4.0%, crude oil prices rebounded, and the dollar slipped. Energy advanced by more than 3.0%, far ahead of real estate, industrials, and financials, which were the only other sectors to gain ground.

Melissa MinterJanuary 20, 2021

Overview

Click here to download PDF

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.

News

Market Week: January 19, 2021

Overview

AZ, CA, CO, CT, ID, LA, NM, PA, TX, WI