ND&S Weekly 12.28.20 – “Auld Lang Syne”

December 28, 2020

Last week investors and traders had a day and half off for Christmas. Congress finally approved a $900 billion stimulus package, a long awaited gift to those in desperate need. However, Trump threatened to veto it unless the $600 payment to needy individuals was increased to $2,000 (the bill was signed last night).

As a result, US stocks closed the Christmas week mixed and with relatively low trading volume. The Dow Jones Industrial Average (DJIA) fell 0.34%, the S&P 500 lost 0.49% and the tech heavy Nasdaq rose 0.32%. Despite the US dollar sliding 0.1% to 90.30, foreign markets weakened as Developed (EAFE) and Emerging (EEM) equities slid 1.08% and 1.51%, respectively. The Russell 2000 index, made up of U.S. small cap companies, closed the week near its all-time high, gaining 1.33%. Since its low on March 18th, the index has surged 102%. The yield on the benchmark 10 year US Treasury note fell 1 basis point to 0.94%. Crude oil (WTI) rose 0.4% to $48.30 per barrel and gold bounced 0.5% to $1875 per ounce.

There was very encouraging news about the successful roll-out of Pfizer’s and Moderna’s Covid-19 vaccines being distributed to US front-line workers and long-term care residents. Concerns grew, however, over increasing infection rates and the spreading of a new Covid-19 strain in the United Kingdom which could be 70% more contagious.

On the economic front, existing home sales fell 2.5% in November (m/m), largely in-line with expectations. New home sales fell 11% in November missing estimates. Housing supply remains tight with inventory at 2.3months given current rate of sales, marking an all-time low. Initial unemployment claims came in at 803,000, the report beat estimates but remains stubbornly high. The New Year holiday-shortened week will have investors and economists looking at a few important economic reports. On Tuesday, the S&P Case-Shiller home price index for October, the Chicago area manufacturing activity and pending home sales on Wednesday and weekly jobless claims on Thursday will be reported.

The Federal Reserve’s interventions have made all the difference and housing and stock prices have surged since last March. The result has created a much polarized “wealth effect.” The bottom 20% of households account for only 9% of consumer spending while the top 20% generates 39%. The Biden administration will push their programs for higher taxation of the wealthy and more fiscal support for states and municipalities and the republicans will fight back. The senate race in Georgia becomes more and more meaningful to our economic recovery, and the strength of the financial markets.

We wish you and your families a happy and healthy New Year!

“Hope smiles from the threshold of the year to come,’ whispering ‘It will be happier.” —Alfred Lord Tennyson