Commentary provided by John Packs, Senior Investment Officer, AIG Retirement Services
Weekly Market Performance Snapshot (Week ending December 4, 2020 & Year-to-Date)
- Dow Jones Industrial Average®: +1.0% / +6.2%
- S&P 500® Index: +1.7% / +14.5%
- NASDAQ Composite® Index: +2.2% / +38.9%
- Russell 2000® Index: +2.0% / +13.4%
- 10-year U.S. Treasury note yield on December 4, 2020: 0.972%
- Up 13 basis points from 0.842% on November 27, 2020
- Down 94.8 basis points from 1.92% on December 31, 2019
- Best-performing S&P 500 sector this week: Energy, +4.5%
- Weakest-performing S&P 500 sector this week: Utilities, -2.2%
Past performance is not a guarantee of future results.
A November to remember
Equities hit record highs in November as optimism soared on positive vaccine news. Election results also pointed to a divided government that will likely limit major policy changes over the next year or two. The momentum carried over into the first week of December, with the Dow Jones Industrial Average, S&P 500 Index, NASDAQ Composite, and Russell 2000 setting new all-time highs during the week.
- For November, the Dow Jones Industrial Average rose 11.8%, its best-ever monthly performance. It also closed above the 30,000 mark for the first time ever. The broad-based S&P 500 Index rose 10.8% for its best November ever.
- The small cap Russell 2000 Index set new highs in November on the way to notching an 18.3% gain for the month. Small caps and other cyclical stocks stand to benefit from a return to broader economic growth once a vaccine is widely available.
- Along with the rotation into cyclical stocks, the tech-heavy NASDAQ Composite also participated in the rally. The index reached record territory and gained 11.8% for November, as investors bet that the work-from-home and shop-from-home trends of 2020 won’t entirely reverse after a vaccine is approved.
- Energy was the best-performing S&P sector for November, rising 26.6%. Investors anticipate energy consumption will increase once people begin returning to offices, retail stores, and other public venues. Note that the Energy sector remains down more than 33% for the year.
- The 10-year Treasury yield has risen more than 40 basis points (0.40%) since early August, and finished the week near the 1% mark—another sign of investor optimism about further fiscal stimulus and the strength of the post-COVID economy.
Will Congress act on government funding and stimulus?
The economic picture is fairly clear at the moment. The momentum from earlier in the recovery has slowed, but the economy remains somewhat resilient. The immediate question is whether Congress has a sense of urgency to pass another stimulus bill before several CARES Act provisions, including pandemic-related unemployment assistance and student loan forbearance, expire at the end of the month.
- The November jobs report, released Friday, revealed that 245,000 new jobs were created in the month and the unemployment rate ticked down to 6.7%. The job creation figure was below expectations, offering further evidence of reduced economic momentum. However, equity markets rose after the figures were released, anticipating that the disappointing report would increase pressure on policymakers to agree to fiscal stimulus.
- The Continuing Resolution (CR) under which the federal government is operating expires on Friday, December 11. The CR is a stop-gap measure that extended fiscal year 2020 funding levels into fiscal year 2021, which began October 1. If the CR is not extended or replaced with a full-year funding agreement before it expires, the federal government would shut down next weekend. This would likely dampen market enthusiasm.
- Because the CR is considered a must-pass measure, Congress may attach some coronavirus relief and stimulus measures to the bill. A new proposal from a bipartisan group of House and Senate members would see roughly $900 billion in new relief for small businesses, state and local governments, and unemployed workers. Democratic and Republican congressional leaders expressed optimism that a deal could get done, while both President Trump and President-elect Biden continued to signal support for stimulus.
How quickly will vaccines deliver economic results?
With vaccine optimism driving markets, there is a lot of anticipation about how quickly vaccines can be distributed and usher in a return to economic normalcy. Yet there are significant logistical challenges associated with producing, shipping, storing, and administering vaccines.
- The UK government became the first Western government to approve a COVID-19 vaccine. Its experience over the coming weeks may inform how vaccines are distributed in the rest of Europe and North America.
- The FDA is set to consider approving vaccines from Moderna and Pfizer/BioNTech over the next two weeks. A CDC advisory panel recommended that vaccine distribution prioritize health care workers and people living and working in nursing homes and long-term-care facilities.
- Markets will be watching closely to see how smoothly vaccine distribution goes in the UK, U.S., and elsewhere. While optimism is high now, hiccups in the process, or outcomes that are less safe and effective than promised, would likely lead to significant market disappointment and volatility.
Final thoughts for investors
The sharp move in equity prices in November may have shifted your portfolio’s allocations. As we approach the end of the year, speak with a financial professional about whether your assets should be reallocated or rebalanced to remain consistent with achieving your long-term goals.