December Economic Update
The equity markets climbed higher on news of positive stage-three COVID-19 trial results that suggested a highly effective vaccine may be near at hand. Stocks that had been hurt by economic lockdowns surged on the news, while the stay-at-home stocks suffered steep declines. Bond yields and oil prices both moved higher on expectations of increased economic activity. The S&P 500 Index increased 10.75% the Nasdaq Composite rose 11.80% and the Dow Jones, which has lagged much of the year, led the rally, rising 11.84%. (1)
In the beginning of November, stocks opened the month strong climbing throughout election week as bargain-hunting investors appeared to swoop in following the relative weakness in September and October. While the immediate outcome of the presidential election was undecided, the projected results suggested a divided Congress, which investors interpreted as a productive environment for businesses.
Stock prices found additional support on news that President-elect Biden would be nominating Janet Yellen, the former Chair of the Federal Reserve, to be Secretary of the Treasury. Investors reacted well to the choice, encouraged by her previously voiced support for greater fiscal stimulus and relieved that a candidate less antagonistic to the industry was selected.
To begin December, the markets have reacted strongly to statements from Congress and the White House regarding renewed hope of a second economic stimulus package. Last month, Federal Reserve Chairman Jerome Powell had continued to voice his support for additional fiscal stimulus to assist small businesses, state and local governments, and the unemployed. He further stated that even after full economic recovery, some businesses and workers may wrestle with an economic landscape permanently altered by the coronavirus. (2)
What to Watch in November
After such a powerful rally, investors may be asking themselves, “What’s next for stock prices?” Over next month, all eyes will be focused upon the trajectory of new COVID-19 infections and how they may influence economic activity over the coming weeks and months. There will likely be further developments - both positive and negative - regarding the manufacturing and distribution challenges with vaccines. We will also be awaiting news of final approval from the FDA for the new vaccines.
The shift in consumer spending habits in a post COVID-era was apparent on Black Friday, with traditional retail outlets struggling while online sales increased dramatically. The holiday season is the most important time of the year for many businesses. While many will survive or even thrive during this difficult time, others will face tremendous challenges in this new landscape.
With these short and mid-term challenges persisting, combined with the optimism of vaccine dispersion, we may see more “choppy” price action in the markets over this coming month with the current over-bought conditions. However, in the long-term, we remain optimistic that a true economic recovery may be on the horizon towards the middle to end of next year.
Monthly Financial Tip:
If you have multiple credit cards, take a look at the rewards offered by each one. Some may have higher rewards for gas, while others may offer better perks for other select purchases.
1. The Wall Street Journal, October 31, 2020
2. CNN.com, November 17, 2020
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.