The Markets
U.S. stock markets remained calm as a fresh chapter opened in the coronavirus stimulus saga last week.
Congress managed to cobble together a new stimulus package that was acceptable to both sides and pass it. The proposed package included money to help states distribute vaccines, an unemployment benefits extension, $600 checks for eligible Americans, aid for airlines, and other provisions, reported Mike Calia of CNBC. After approximately a week delay, President Trump signed the bill into law late in the night of Sunday December 27th and urged Congress to consider passing legislation to increase the stimulus checks from $600 to $2,000.
“…fiscal support is seen as critical to keep the economic recovery from faltering as coronavirus cases rise and cities consider new shutdowns. Consumer spending has flagged, and labor market gains have begun to stall. While the number of Americans applying for unemployment benefits declined last week, it still remains elevated compared with pre-COVID levels,” reported Colby Smith and Eric Platt of Financial Times.
News of a Brexit trade deal and a more contagious version of the virus in the United Kingdom had limited impact on U.S. markets.
All-in-all it was a quiet holiday week and major U.S. indices finished with mixed results. If the stimulus bill is not signed and a stopgap measure is not passed, markets could be volatile next week.
Data as of 12/24/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.2% 14.6% 14.9% 11.4% 12.4% 11.4%
Vanguard Total Intl Index (Foreign Stocks) -1.1 9.2 9.8 4.6 8.5 5.0
10-year Treasury Note (Yield Only) 1.0 NA 1.9 2.5 2.2 3.4
Gold (per ounce) -0.3 23.1 25.8 13.6 11.8 3.1
Bloomberg Commodity Index -0.4 -4.8 -4.5 -3.9 -0.4 -7.0
S&P 500, Vanguard Total Intl Index, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
THERE WILL ALWAYS BE RISKS. After a year of living with the fear of COVID-19, many investors are hoping 2021 will bring a return to ‘normal,’ even if the new normal may not be exactly like the old one.
Optimism about the future has many investors feeling bullish, according to most of the sentiment surveys listed in Barron’s last week. Financial Times reported, “Almost universally, fund managers believe the year will bring a rebound in economic activity, supporting assets that have already soared in value since the depths of the pandemic crisis in March, but also lifting sectors that had been left behind. Bond yields are expected to stay low, lending further support to stock valuations.”
This doesn’t mean 2021 will be risk free. In its December market sentiment survey, Deutsche Bank asked more than 900 market professionals about the biggest risks to global financial markets in 2021. Here are the concerns they highlighted:
38 percent Virus mutates and vaccines are less effective
36 percent Vaccine side effects emerge
34 percent People refuse to take the vaccine
34 percent Technology bubble bursts
26 percent Central banks end stimulus too soon
22 percent Inflation returns earlier than expected
It’s possible none of these will occur and investors will sail smoothly into and through the new year. We hope that’s the case and next year brings with it a return to normal. Just remember, normal doesn’t mean risk-free. In 2021, investors will still need to balance risk and reward on the journey toward their financial goals – just as they do every year.
Weekly Focus – Think About It
“True wealth is not measured in money or status or power. It is measured in the legacy we leave behind for those we love and those we inspire.”
–Cesar Chavez