ND&S Weekly Commentary (12/21/20) – Markets and Coronavirus Cases Move Higher

December 21, 2020

Markets advanced last week in anticipation of the FDA’s approval of the Moderna vaccine and the expectation that Congress will pass another stimulus package. Also, the Fed held its final meeting of 2020 and reiterated its dovish and highly accommodative stance. Adding to investors’ confidence was the Fed’s announcement on Friday that banks will be able to buy back shares following a successful stress test. Offsetting this good news was a surge in coronavirus cases and news out of the U.K. of a new more virulent (yet less deadly) strain of coronavirus.

For the week, the DJIA advanced 0.46% while the S&P 500 gained 1.29%. The tech-heavy Nasdaq jumped 3.07%. Developed international markets also moved higher. For the week, the MSCI EAFE index gained 2.01% while emerging market equities (MSCI EM) finished higher by 0.90%. Small company stocks, represented by the Russell 2000, finished ahead by 3.09% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower as the index closed lower by 0.08%. As a result, the 10 YR US Treasury closed at a yield of 0.95% (up ~5 bps from the previous week’s closing yield of ~0.90%). Gold prices closed at $1,885.70/oz – up 2.5% on the week. Oil prices jumped $2.53 (or 5.4%) last week as investors bet that an economic recovery will lead to increased demand for oil.

Economic news released last week was mixed. On Tuesday, the Fed announced that industrial production for November advanced 0.4%, ahead of expectations for a 0.3% advance. On Wednesday, the U.S. Commerce Department reported that November retail sales fell 1.1%, lower than expectations for a 0.3% decrease. Also on Wednesday, U.S. Markit PMIs were mixed, but still strong and in expansion. Manufacturing declined by 0.2 to 56.5, exceeding expectations for a 55.8 reading. On Thursday, the U.S. Census Bureau reported that housing starts jumped 1.2% month-over-month in November to a seasonally adjusted annual rate of 1.547 million (ahead of consensus for 1.54 million). Also on Thursday, the Department of Labor reported that weekly initial jobless claims increased to 885,000, missing an expected 808,000 claims. Economic news in the holiday-shortened week ahead will focus on GDP, home sales and employment data.

We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. Stay Safe and Happy Holidays!

“It is the set of the sails, not the direction of the wind that determines which way we will go.” – Jim Rohn