ND&S Weekly Commentary (1/4/21) – Markets End Year on High Note

January 4, 2021

U.S. equities closed the last week of 2020 at or close to record all-time highs. For the week, the S&P 500, DJIA and NASDAQ were up 1.45%, 1.35% and 0.66%, respectively. International markets also finished on a high note with the MSCI EAFE adding 1.44% and emerging markets (MSCI EM) jumping 3.16%. The lone detractor were U.S. small cap equities (Russell 2000), which saw some profit taking to finish lower by 1.41%.

It was a slow week for news and economic reports with pending home sales declining 2.6% m/m. That will change in the first week of the year as there is a run-off election set for Tuesday in Georgia that will determine the direction of power in Congress. Market consensus is for Republicans to pick up at least one seat in the Senate giving them a majority. Markets do best under split control in Washington as it will usually foster an environment of bipartisanship. Markets would likely react negatively to a Democratic sweep … like any decline, it will ultimately be temporary. This week, look for reports on mfg. and non-mfg. PMIs with the big economic release being the U.S. Jobs Report for December. Expectations are modest with only 68,000 jobs being added and the unemployment rate increasing slightly to 6.8%. This would be a significant cooling from the 245,000 jobs added in November.

Interest rates were little changed last week as the 10 year U.S. Treasury note finished at 0.93%, down slightly from 0.94% the prior week. What a difference a year makes … many 2020 year-end estimates at the beginning of the year were for the 10yr U.S. Treasury to finish above 3.00%. Nobody saw the 360° turn in monetary policy that was required by the outbreak of Covid-19. The Federal Reserve reaffirmed its commitment to maintaining low rates for the foreseeable future.

Looking ahead to the New Year, the passage of a $900 billion stimulus package and the rollout of Covid-19 vaccines should help support consumer sentiment and bolster the economic recovery. Corporate earnings should also start to look better as the year unfolds.

Best wishes for a happy, healthy and peaceful New Year!

“You can change. And you can be an agent of change.” – Laura Dern