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Current Market Observations

January 5, 2021 | Weekly Commentary

by William Henderson, Vice President / Head of Investments
Another holiday-shortened trading week for the markets and again they did not disappoint investors with each of the broader stock market indices posting a positive week. The Dow Jones Industrial Average returned +1.6%, the S&P 500 Index +1.8%, and the NASDAQ + 0.9%. The positive returns for the week added to already strong year-to-date returns. Year-to-date, the Dow has returned +9/7%, the S&P 500 +18.4%, and the NASDAQ Composite +44.9%. Given where we were in March of 2020, and all that the economy dealt with in the year, these returns are very healthy and certainly rewarded investors that stayed the course and remained invested and diversified throughout the year.  

After the pandemic hit in February/March of 2020, and the world’s economies shut down, the markets reacted as expected with sharp sell offs across every major market and every major asset class. At the bottom of the market in March 2020, the S&P 500 Index was down -32% from its earlier peak in February of 2020. After the stock market sold off and governments around the world imposed a lockdown to halt the spread of the new COVID-19 virus, the U.S. Economy fell into a deep double-digit recession. Almost immediately, we saw coordinated actions from President Trump, the U.S. Congress and the Federal Reserve. The President created Operation Warp Speed to find a vaccine for the virus, Congress passed multiple stimulus packages designed to aid families and the Federal Reserve, led by Jerome Powell, enacted multiple plans and actions designed to provide needed liquidity and stability to the fixed income and equity markets. Then, in November, a vaccine was developed, and distribution began in December of 2020. The concerted efforts of the government, the Fed, and the private sector paid off and there was now light at the end of the proverbial tunnel. As fast as the market fell in March of 2020, we saw a V-Shaped bounce back in markets, and by year-end 2020 each of the broader indices hit new record close figures.  

As we move into 2021, we have several strong tail winds that could continue to move markets higher. Widespread distribution of the COVID-19 vaccine is just beginning. Each dose delivered moves us closer to a full opening of the U.S. Economy. For most of 2020, consumers, who make up at least 60% of the economy, were on the sidelines and spent very little – conversely – they saved a lot and stockpiled record amounts of cash. According to the Federal Reserve Bank of St. Louis, $20 trillion of cash sits in commercial bank accounts, money market funds and personal savings accounts. The Fed’s Zero Interest Rate Policy (ZIRP) and further plans to keep interest rates low for as long as needed, gives corporations access to nearly free money for capital expenditures, hiring of employees, dividends or stock buy backs – all of which will help with the economic recovery well into 2021. With a Biden administration, we may also see further fiscal stimulus in the form of cash to families. At the start of this new year, more economic tailwinds exist than headwinds, which puts us in place for a heathy year. Stay the course, stay invested, stay diversified and stick to your financial plan.