Author’s note: As we have had to do all too often in recent months, it’s important we add a short note to the introduction to this piece, as it was written before the stunning and appalling events that unfolded in Washington, D.C. on January 6th. We join in the calls for calmer heads to prevail and we eagerly await an orderly transfer of power on Inauguration Day.
In spite of renewed concerns over the spread of the coronavirus, 2020 ended on a generally upbeat note for the markets. December kicked off with the rollout of two new vaccines for treating Covid-19, one from Pfizer BioNTech and the other from Moderna. A third, from Oxford AstraZeneca, was added later in the month.
“Jabs”, as the British charmingly call shots, started in the United Kingdom on December 8th, and in the U.S. on December 14th. Collectively, optimism over these developments allowed investors to envision a return to something like normalcy at some point in 2021.
Also hanging over the markets at year end was the on-again/off-again stimulus talks in Congress. The numbers bandied about ranged from $900 billion to around $2 trillion. Rising jobless claims and a slowdown in consumer spending provided some impetus for getting things done, and a new bill was finally passed on December 21st (though President Trump initially declined to sign it) that included $600 payments to individuals, a potential boost for spending.
The U.S. Federal Reserve kept its foot on the gas throughout the month and pledged to hold rates low for at least three years. A Bloomberg story contended that much of the market returns could be credited to a single number: the $14 trillion increase in the aggregate money supply in the U.S., China, Eurozone, Japan, and eight other developed economies engineered by global central banks. Certainly, there was plenty of money sloshing around even as the Fed continued its bond buying, helping keep interest rates low.
Debate over the U.S. presidential election theoretically came to an end (though in reality, as we know, it did not) when former Vice President Biden was confirmed as the winner when the Electoral College met to vote on December 14th. Rancor, alas, did not dissipate following these results, even as many turned their attention next to the two Senate runoff elections that took place on January 5th in Georgia, the results of which saw the Democrats win both open seats setting the stage to have major impacts on the efforts of the Biden administration to enact its agenda.
For those inclined to worry, clearer signs of an economic slowdown provided an additional reason to do so. New jobless claims hit 885,000 the week of December 12th before declining to a still dizzying 803,000 the following week. The Labor Department reported that the economy had added 245,000 jobs in November, down sharply from 638,000 the month before, with the unemployment rate falling to 6.7%. Existing home sales were down -2.5% to 6.69 million in November compared to the month before, but up nearly 26% year-over-year, as reported by the National Association of Realtors.
The Commerce Department reported a -1.1% decline in retail sales in November, the biggest drop in seven months. Looking at the period from mid-October through Christmas, MasterCard SpendingPulse reported that holiday sales rose by 3%. Online sales jumped 49% in the period compared to the prior year, with e-commerce representing about 20% of retail spending, up from 13% in 2019, according to MasterCard, as shopping and spending patterns continued to change in the face of continued or in some cases reinstituted lockdowns.
The broad market indexes hit new highs throughout the month, concluding a year that saw both the fastest-ever descent into a bear market and the fastest recovery. The S&P 500 ended 2020 up 16.3% while the Nasdaq posted a remarkable 44% return, its best year since 2009. It was an outcome that would have been difficult to foresee back in the dark days of spring, and one that shows again how difficult it is to predict short-term market moves.
The month closed with the new stimulus package in place (though there was still discussion as to whether or not to expand the individual payments to $2,000), which should be supportive of growth going into 2021. The rollout of the coronavirus vaccine continued, but it was frustratingly slow, with Bloomberg reporting that 4.28 million doses had been administered as of the end of the month, against a goal of 20 million. But markets seem to take this in stride, too. On the last day of the last month of the year, the S&P 500 and Dow Jones Industrial Index both stood at record levels.
The question remains: will the markets continue to take things in stride in 2021?
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