December 2020 Market & Economic Update
December 2020 Market & Economic Update
12/02/2020
Good things come in threes, it is often said, and a perfect trifecta of outcomes has propelled the markets to all-time highs in November. A decisive victory in the U.S elections; news of effective Covid-19 vaccines; and positive surprises on third quarter earnings. This was the best November anyone under 92 has ever experienced. The S&P 500 rose 10.9% for the month. It was the best elections November performance since the 1984 Reagan sweep (source: Barrons.com)
As of 11/30/2020Returns
US (S&P 500, Symbol: SPY) Up 12.49%
The Dow Jones (Symbol: DIA) Up 4.04%
The NASDAQ Composite Up 31.24%
Europe (Euro Stoxx 50, Symbol: FEZ) Down 1.13 %
Emerging Markets (Symbol: EEM) Up 8.60%
Bonds (Total Bond Index, Symbol: BND) Up 5.52%
Gold (Symbol: GLD) Up 16.63%
(source: cnbc.com)
A Biden win raises the likelihood of a bigger dose of government spending to prop up the economy until one or more vaccines is widely distributed. A vaccine of course, would increase hiring and consumer spending by enabling governments both in the U.S. and around the world to lift restrictions that have choked off economic growth
As we close out the year, it’s a bit of a push-and-pull: The vaccine news has pulled forward the post-pandemic improvement to economic growth, while the surge in virus cases nationally is pushing down near-term growth projections. As we move into 2021, we may see another dip in economic activity in the near term, but the longer-term outlook appears brighter. Easy monetary and fiscal policy, combined with an anticipated COVID-19 vaccine rollout beginning in the first half of 2021, may lead to a strong rise in economic and earnings growth. Aside from the vaccine, other tailwinds include the prospects of a divided Congress and its relatively benign implications for major changes to tax policy, and stronger-than-expected corporate earnings
It’s no secret that there is a large disconnect between the stock market and the economy. To a large extent, the unique nature of the gap reflects an economy that had a small handful of “thrivers” during the pandemic, while most companies and industries were in a very beleaguered state. For a large part of the year, the top five largest stocks in the S&P 500® by market capitalization—Apple, Microsoft, Amazon, Facebook and Alphabet/Google—massively outperformed the other 495 stocks. At their early September peak, these five stocks represented nearly 25% of the S&P 500, so their hefty outperformance lifted the overall index. However, since early September there has been a series of rotations into other areas of the market—not just the thrivers. We have seen shifts from growth stocks to value stocks, from large-cap to small-cap, from defensives to cyclicals, from stay-at-home stocks to get-out-and-about stocks, and from leaders to laggards. Looking ahead, we expect rotations will continue to come in fits and starts, largely driven by virus-related news about economic activity. (Source: cnbc.com)
Stock valuations do represent a risk in 2021, especially if corporate profits do not live up to expectations, although valuations will continue to receive implicit support from extremely low interest rates. Valuation is as much an indicator of sentiment as it is a fundamental indicator—and frothy sentiment is also a risk heading into 2021. As the stock market recently reached new peaks and investor optimism has become more widespread, the risk grows that bad news could cause a near-term reversal.
In the meantime, should you have any questions or would like to discuss your situation please don’t hesitate to let us know so we can set up a call or video conference or a meeting if need be
Sincerely,
Neal W. Mufti, CFP® M. Mike Iftaiha, CFP®
Managing Director Financial Advisor
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