Week of December 28, 2020

We hope everyone had a wonderful, safe and healthy holiday season.

This week will mark our last blog post for 2020 and will be another holiday-shortened week of trading in the stock and bond markets as all will be closed on Friday in observance of New Year’s Day.  We begin this morning, December 28, with market futures solidly to the upside reacting to the President’s signing of the COVID relief bill over the weekend.

Even with the spread of COVID that changed daily life around the world, the U.S. equity markets look to close out the year sharply higher.  As of the close of markets last Thursday, the S&P 500 is on track to post a 14.6% gain for 2020, and the Dow on track to gain 5.8% for the year.  The big winner in the tech-heavy NASDAQ Composite on track to post a gain of 42.7%.  COVID played a significant role in changing consumer demand toward “stay-at-home products, driving the information technology and consumer discretionary sectors of the NASDAQ to all-time highs.

However, the COVID lockdowns hit several sectors particularly hard, to include energy, financial, airlines, cruise lines and travel and leisure.  Only with the recent FDA approval and initial distribution of Pfizer’s vaccine did these beaten-down sectors begin to recover. 

As we approach 2021, many equity strategists are bullish on the outlook for the domestic equity markets.  Cited as drivers of another solid year for stocks is the distribution of what looks to be two of more COVID vaccines, a Federal Reserve willing to keep interest rates at or close to zero and the initial fiscal stimulus (with perhaps more to come) .  Of twelve strategists followed by Yahoo Finance, the median forecast for the S&P 500 is 11.5% in 2021.

These outlooks, however, are based on some fairly optimistic economic assumptions and don’t seem to allow much room the struggle between the continued spread of COVID and the manufacture and wide-spread distribution of vaccines.

Our outlook for 2021 is cautiously optimistic for the investment markets.  That said, if we learned anything from 2020, it is to be prepared for event shocks coming from outside the financial world.  We anticipate the U.S. economy will begin to be revived by the end of the second quarter, interest rates to remain low with a possibility of an uptick in inflation.  We will keep you updated with our weekly blog posts and monthly Market Perspective.

We wish everyone a healthy and happy New Year!