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The Markets
Investors were rocked by economic data showing the economy hit the brakes hard in December. Last week, major U.S. stock indices decelerated as investors gaped at the economic damage caused by the rising number of coronavirus cases around the world. There have been more than two million COVID-19 deaths globally, with more than 390,000 deaths in the United States. The spread has resulted in new lockdowns and restrictions and has hurt economic recovery. Ben Levisohn of Barron’s reported: “This past week – with the market looking ahead to the inauguration and what might be in store following the Capitol riots and Donald Trump’s second impeachment – was a terrible one for economic data. Whether it was small-business confidence, consumer inflation, or just about anything else, the numbers painted a picture of an economy that was slowing more rapidly than expected. Initial jobless claims, which spiked to their highest level since August, and retail sales, which fell 0.7 percent, were particularly frightening.” On Thursday, President-elect Biden explained his $1.9 trillion economic relief package. The announcement of new stimulus didn’t move investors. That may be because the potential impact of a new stimulus plan has already been priced into markets, as has the new administration’s longer-term plans for infrastructure spending, reported Katherine Greifeld of Bloomberg. The relief package that passes Congress may be smaller – about $1.1 trillion, according to a Goldman Sachs economist cited by Randall Forsyth of Barron’s. Investors are keeping an eye on inflation, which remains relatively low but has begun trending higher, according to Jeffry Bartash of MarketWatch. During the past few months, the core rate of inflation has remained below the Federal Reserve’s 2 percent target. However, inflation expectations and bond yields have been moving higher, reported Jonnelle Marte, Ann Saphir, and Howard Schneider of Reuters. As bonds provide more attractive returns, income investors may shift away from stocks and into less risky opportunities. Last week, the Standard & Poor’s 500 Index lost more than 1 percent for the first time since October. The Guidance Wealth office will be closed
Monday, January 18th, in observance of Martin Luther King Jr. Day. The Markets The event at the United States Capitol building had a resounding impact around the world, but it didn’t deter global stock markets. Last week, investors weighed the violent disruption of America’s 2020 presidential election process against the outcome of the Senate runoff in Georgia, and decided the latter was more significant. Financial Times reported the Democratic party’s win in Georgia improves the possibility of additional government relief spending in 2021: “In turn, this renews the momentum behind trends within equity and bond markets that have been unfolding in recent months. These include rising long-term interest rates and inflation expectations that reflect hopes of an accelerating economy later this year.” Last week, the yield on 10-year U.S. Treasuries moved above 1 percent for the first time since March 2020, closing on Friday at 1.13 percent. Disappointing employment numbers may provide an impetus for additional government stimulus measures. Last Friday, the U.S. Bureau of Labor Statistics reported the loss of 140,000 U.S. jobs in December 2020. It was the first decline in eight months, reported MarketWatch, and resulted from a surge of coronavirus cases across the country. The unemployment rate remained unchanged at 6.7 percent. Major U.S. stock indices moved higher last week. The Standard & Poor’s 500 Index, Dow Jones Industrial Average, and Nasdaq Composite all closed at record highs. The small-cap Russell 2000 Index gained almost 6 percent. Global stock markets also moved higher. A strategist cited by Financial Times commented, “The only noise in markets…was a bullish stampede as [they] continued their strong start to 2021.” We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
The Markets Last week was the cherry on top of a turbulent year for investors. After the $900 billion fiscal stimulus bill was signed on Sunday, major U.S. stock indices moved higher. The Washington Post reported, “The S&P 500-stock index, the most widely watched gauge, is finishing the year up more than 16 percent. The Dow Jones Industrial Average and the tech-heavy Nasdaq gained 7.25 percent and 43.6 percent, respectively. The Dow and S&P 500 finished at record levels despite the public health and economic crises.” U.S. Treasuries gained, too, as yields moved slightly lower. Thirty-year Treasuries finished the week yielding 1.65 percent. While government bonds didn’t offer attractive levels of income during the year, they “…lived up to their billing as a stock market hedge in 2020. Rates plunged as stocks collapsed in March, and the Treasury market finished 2020 with yields not much above the pandemic panic lows and down half a percentage point or more for the year,” reported Barron’s. The Year in Review Early in 2020, despite the COVID-19 outbreak in Wuhan, China, the possibility of a global pandemic was not on investors’ minds. Financial markets were concerned about:
As the COVID-19 virus began to spread across the globe, stock markets dropped sharply around the world and the longest bull market in U.S. history came to an end. The downturn reflected doubts about the U.S. government’s response to the crisis. In mid-March, Axios reported, “While central banks around the world are stepping in, it’s unclear what measures – if any – the Trump administration will be able to get through Congress to stem the economic pain.” Before the end of the month, attitudes shifted as Congress responded to the coronavirus juggernaut by passing the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. The measure received overwhelming bipartisan support and was quickly signed into law. The CARES Act and central bank support inspired optimism in financial markets. The bear market in the S&P 500 Index became the shortest in history, lasting just 33 days, according to Reuters. From late March through August, despite significant economic damage and persistent virus spread, the S&P 500 recovered its losses, gaining about 55 percent. The economy also began to recover in the second quarter, and the United States saw gains in employment, consumer spending, and other economic data, reported Deloitte. However, by late July, there were signs the recovery might be faltering. “Daily credit card spending, which by early April had declined 32 percent from the pre-COVID level, was up to just 4.7 percent below the pre-COVID level on June 22. But, by July 19, it was falling, down 6.4 percent. Initial weekly claims for unemployment insurance stalled at 1.4 million – a huge number suggesting that job losses were continuing. And, the Census Bureau’s weekly Household Pulse survey found more people unemployed in late July than at the beginning of the month,” reported Deloitte. Congress went back to work and spent much of the latter half of 2020 negotiating a new stimulus bill, which passed last week, and $600 stimulus checks have begun arriving in Americans’ bank accounts. In the meantime, several COVID-19 vaccines have been developed and approved, and inoculations have begun in several countries. Vaccine availability boosted financial market optimism. Investors anticipate vaccines will bring the coronavirus under control and usher in a return to business-as-usual by mid-2021, reported CNBC. We wish you a happy and prosperous New Year! We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
Please note our office holiday hours will be different from our normal business hours. Office hours for December 28th – December 31st will be 9:00 am to 4:00 pm. Our office will be closed all day, January 1st, 2021. The Markets U.S. stock markets remained calm as a fresh chapter opened in the coronavirus stimulus saga last week. Congress managed to cobble together a new stimulus package that was acceptable to both sides and pass it. The proposed package included money to help states distribute vaccines, an unemployment benefits extension, $600 checks for eligible Americans, aid for airlines, and other provisions, reported Mike Calia of CNBC. “…fiscal support is seen as critical to keep the economic recovery from faltering as coronavirus cases rise and cities consider new shutdowns. Consumer spending has flagged, and labor market gains have begun to stall. While the number of Americans applying for unemployment benefits declined last week, it still remains elevated compared with pre-COVID levels,” reported Colby Smith and Eric Platt of Financial Times. President Trump disagreed with some provisions in the bill, reported Financial Times. Over the weekend, it was unclear whether he would sign it, veto it, or just hold it without taking action. Since the $900 billion stimulus bill was attached to the $1.4 trillion government funding bill, the impact of a veto or inaction could be quite significant. “Without Trump’s signature, the government may partially shut down on Tuesday as funding runs out, though Congress could pass a stopgap measure,” reported Daren Fonda of Barron’s. Stock investors appeared optimistic President Trump would sign the bill. News of a Brexit trade deal and a more contagious version of the virus in the United Kingdom had limited impact on U.S. markets. All-in-all it was a quiet holiday week and major U.S. indices finished with mixed results. If the stimulus bill is not signed and a stopgap measure is not passed, markets could be volatile next week. We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
Please note our office holiday hours will be different from our normal business hours. Our office will close at noon on Christmas Eve, December 24th and re-open on Monday, December 28th at 9:00am. Office hours for December 28th – December 31st will be 9:00 am to 4:00 pm. Our office will be closed all day, January 1st, 2021. The Markets Congress is at $900 billion, will they hear $1.4 trillion, $1.4 trillion, governments at $900 billion, who’ll go $1.4 trillion, $1.4 trillion… The stimulus auction continued last week. Early on Sunday, The New York Times reported, “Lawmakers are on the brink of agreement on a $900 billion compromise relief bill after breaking through an impasse late Saturday night, with votes on final legislation expected to unfold as early as Sunday afternoon and very likely just hours before the government is set to run out of funding.” Among other items, policymakers’ plan to deliver new stimulus and fund the government is expected to include:
The Federal Reserve met last week, too. It affirmed it will continue to hold rates near zero and purchase $120 billion of bonds every month. Nalak Das of Nasdaq reported: “A low interest rate will reduce the cost of capital for businesses, while consumers will have a lesser propensity to save due to a low deposit rate. Therefore, higher spending by businesses and consumers is likely to bolster the overall economy and raise stock prices. In its latest projection, the Fed forecast the GDP [*] to decline 2.4 percent in 2020, reflecting an improvement over September's projection of a decline of 3.7 percent.” *Gross Domestic Product is the value of all goods and services produced in the nation. Major U.S. stock indices moved higher last week. We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
Please note our office holiday hours will be different from our normal business hours. Our office will close at noon on Christmas Eve, December 24th and re-open on Monday, December 28th at 9:00am. Office hours for December 28th – December 31st will be 9:00 am to 4:00 pm. Our office will be closed all day, January 1st, 2021. The Markets When it comes to beverages, frothy can be delicious. In what may be the least inspiring description of fizzy drinks ever written, a group of food engineers explained, “Aeration in beverages, which is manifested as foam or bubbles, increases the sensory preference among consumers.” Stock markets can fizz up, too. Share prices bubble, enthusiastic investors invest, and prices go even higher. In a frothy market, share prices often rise above estimates of underlying value. The terms that describe this financial market phenomenon include irrational exuberance, animal spirits, and overconfidence. Last week, there was speculation about whether some parts of the U.S. stock market have gotten frothy. Eric Platt, David Carnevali, and Michael Mackenzie of Financial Times wrote about an initial public offering (IPO) of stock by a hospitality company. They reported: “…[the share price] more than doubled in value on Thursday in a return to the kind of mammoth pops that came to define the dotcom boom of the late 1990s…It’s a sign of frothiness, a sign of incredible demand, a sign of a retail investor that…just wants to get in.” That observation about investor enthusiasm for stocks was supported by the AAII Sentiment Survey. Last week, 48.1 percent of participants were bullish. The long-term average is 38 percent. (Some believe the survey is a contrarian indicator. When bullishness is stronger than usual, contrarian investors would adopt a bearish stance, and vice versa.) Despite IPO fervor, major U.S. stock indices finished lower last week. The decline has been attributed to a lack of new stimulus from Congress rather than concerns about high share prices. Inflation worries may have played a role, too. Last week, headlines in both The Economist and The Wall Street Journal suggested the post-pandemic world may include higher inflation. Wall Street’s fear gauge, the CBOE Volatility Index edged higher last week, reported Ben Levisohn of Barron’s. It’s at about 24.6, which is above its long-term average of 19. That’s a sign markets may be volatile during the next few weeks. We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside
The Markets When is bad news good news? Take a look at last week. Major stock indices in the United States hit all-time highs on Friday, despite a lackluster employment report and a surge in COVID-19 cases, reported Lewis Krauskopf of Reuters. During the week, we saw:
In light of this news, why were markets bullish? Signs the economic recovery is faltering create a strong incentive for Congress to pass a stimulus bill in 2020 instead of delaying until next year, reported Barron’s. An analyst cited by the publication said, “Under the circumstances, it is hard to be a seller of any risk asset as long as there is a good possibility of getting a deal done…” During the next few months, markets may be quite volatile. Hang tight and keep your eyes on your long-term financial goals. We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
The Markets Last week, vaccine optimism immunized investors against signs of economic weakness. In previous commentaries we’ve written about narrative economics, which holds that popular stories may affect individual and collective economic behavior. Last week, diverse narratives had the potential to influence consumer and investor behavior, but not all did. You may have read that: Coronavirus anxiety is high. “Figures from recent days suggest infections may have fallen off from record highs in some states. But no one is cheering in the emergency wards. Health workers fear that Thanksgiving gatherings will prove to be super-spreader moments… Meanwhile many college students have just gone home for the year… [A medical professional said], ‘It is like slow-motion horror. We’re just standing there and being run over,’” reported The Economist. Unemployment claims moved higher. “The number of Americans filing first-time claims for jobless benefits increased further last week, suggesting an explosion in new COVID-19 infections and business restrictions were boosting layoffs and undermining the labor market recovery,” reported Lucia Mutikani of Reuters. Economic stimulus is needed. “As it stands, tens of millions are already struggling to make rent payments and put food on the table. The $1,200 stimulus checks sent out by the government in the spring have long run dry and 12 million Americans are set to lose unemployment insurance the day after Christmas if Congress does not act,” reported Jacqueline Alemany of The Washington Post. Vaccines are on the way. “As G20 leaders pledged to ensure the equitable distribution of COVID-19 vaccines, drugs, and tests so that poorer countries are not left out, the United States, United Kingdom, and Germany each announced plans to begin vaccinations in their countries in December…,” reported The Guardian. Fiscal and monetary policy will reinvigorate the economy. “Surely the market strength reflects the fact that barring [vaccine] rollout disasters, we should have our normal lives back within months…Now add in the widely held assumption that the expected new Treasury secretary Janet Yellen will deliver the additional stimulus she has called for, and the newish Federal Reserve rhetoric that holds interest rates need to stay low…Suddenly it makes perfect sense to think that pent up demand and possible productivity gains created by the crisis could help set off what Goldman Sachs calls the Roaring 20s Redux,” wrote Merryn Somerset Webb for Financial Times. The optimistic stories – the potential for vaccines to restore ‘normal’ and the possibility of new stimulus measures if Janet Yellen becomes Treasury Secretary – helped drive markets higher last week. Global stock markets rose and were positioned to deliver their best monthly performance ever, reported Camilla Hodgson of Financial Times. In the United States, the Dow Jones Industrial Average moved above 30,000 before retreating, and the Standard & Poor’s 500 and Nasdaq Composite Indices both finished the week at record highs, reported Ben Levisohn of Barron’s. We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
The Guidance Wealth office will be closed Nov. 26th for Thanksgiving Day. We will also have limited hours on Friday Nov. 27th. The Markets The U.S. economy is like a semi-trailer truck. No one likes being stuck behind a semi at a stoplight because big trucks don’t go from zero to 60 in 2.5 seconds. Neither does the U.S. economy. When the pandemic brought our economy to a near virtual standstill early in 2020, the U.S. government and Federal Reserve (Fed) took extraordinary measures to help the economy get going again:
Government and central bank stimulus helped the American economy get going again. Is slower growth ahead? In recent weeks, however, there have been signs economic recovery may be losing momentum and the virus may, once again, be responsible. Recently, the United States passed a grim milestone. The number of deaths attributed to COVID-19 surpassed 250,000. For perspective, that’s roughly equivalent to the population of Winston-Salem, North Carolina; Irving, Texas; or Buffalo, New York. Last week, some economic data came in weaker than expected and initial unemployment claims ticked higher. Lucia Mutikani of Reuters reported: “U.S. retail sales increased less than expected in October and could slow further, restrained by spiraling new COVID-19 infections and declining household income as millions of unemployed Americans lose government financial support…‘Fed officials are saying they might have to do more and today’s data may turn that thinking into a reality.’” The Treasury curbs the Fed The tools available to the Fed changed last week. The U.S. Treasury announced it will let several of the Fed’s Treasury-funded special lending programs expire at the end of 2020. Alexandra Scaggs of Barron’s reported the programs include:
For these programs to reopen in the future, Congress will need to appropriate new funds. One economist cited by CNBC said, “U.S. Treasury Secretary Steven Mnuchin’s decision to allow key pandemic relief programs to expire is like stripping the lifeboats from the Titanic.” Not everyone agreed. “Programs like the municipal bond program and the Main Street Lending Program have not worked, in part because the Fed is a central bank. And when you demand that it take on fiscal government tasks…it does that very carefully, and, frankly, very badly,” explained an analyst interviewed on Marketplace Morning Report. Despite changing monetary support, U.S. stock markets remained resilient. Ben Levisohn of Barron’s attributed the stock market’s resilience to positive vaccine news, which “…might not have pushed the stock market higher, but it sure was a reason not to sell.” Major indices finished the week slightly lower. We remain open and ready to serve our clients, but due to the recent rise in covid cases in our area, our physical office will be closed to outside visitors. If you need to deliver or retrieve paperwork from our office, please call our office when you arrive and we will greet you at the curbside.
The Guidance Wealth office will be closed Nov. 26th for Thanksgiving Day. We will also have limited hours on Friday Nov. 27th. The Markets Vaccine can be a powerful word. It’s worth 14 points in Scrabble (42 on a triple word square) and, last week, it was worth a whole lot more than that to financial markets. On Monday, a pharmaceutical company and a biotech company announced preliminary trials of their vaccine show it may be 90 percent effective, reported Financial Times. The revelation conjured tantalizing visions of a future in which virus precautions are unnecessary and life returns to normal. Around the world, pandemic-fatigued populations cheered and markets rallied. CNBC reported: “The Dow was up nearly 3 percent, while Nasdaq fell 1.5 as laggard sectors like energy and financials outperformed tech. Stay-at-home plays…were sharply lower, but airlines rallied 16 percent. The S&P energy sector, still down 45 percent this year, was up more than 14 percent, and financials were up 8 percent.” As demand for risk assets, like stocks, increased so did bond yields. In the United States, the yield on 10-year Treasuries rose to 0.97 percent. Rising long-term interest rates caused analysts to speculate about the possibility of inflation and stagflation (rising prices during a period of weak economic growth), reported Barron’s. Mid-week, enthusiasm moderated. While investors remained confident a vaccine could lead to economic recovery over the longer term, concerns about the shorter-term took center stage. Markets retreated a bit as investors mulled:
Market volatility is likely to persist. Stay calm and don’t let short-term events jar you from your long-term financial goals. |
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