January Economic Update
Market Summary
The stock market closed the year with another solid rally in equities driven primarily by the rollout of multiple COVID-19 vaccines and the passing of the new fiscal stimulus relief bill by congress. The S&P 500 Index closed the month gaining 3.71% with the tech-heavy Nasdaq Composite increasing 5.65%. The Dow Jones posted a healthy rise of 3.27% but closed the year lagging behind the other two indices. (1)
News Developments
After the November election, markets rallied in part due to initial results indicating divided control across the three branches of government which historically has been a positive for the equity markets. However, Georgia’s two Senate seats remained undecided and after a special election in early January and both democrats winning these seats, the Senate will no longer have a republican majority.
Many economic analysts are now predicting that a democratic controlled senate, house, and presidency may add another positive boost to the stock market. It is widely expected that democrats will be more willing and able to pass additional stimulus relief packages and infrastructure legislation which would spur increased government spending and help kick start the economy.
The Federal Reserve stated they will continue purchasing $120 billion in Treasury and mortgage-backed securities until substantial progress is made toward its inflation and employment objectives. Although the Fed has repeatedly indicated that achieving their inflation goals may not happen for several years, the stock market recovery and subsequent rally in 2020 has largely been attributed to the expectation of future inflation. (2)
Moving into 2021
The widening gap between the increases in the stock market, future inflation expectations, and low levels of actual inflation at the present time will be closely watched heading into the new year. With the economy still sputtering to reopen, consumers are less likely to be increasing their spending habits. Banks have also been tightened their lending standards which has slowed the issuance of new loans. These factors have continued to foster a low inflationary environment which the Federal Reserve is attempting to combat. While inflation may hurt our wallets by increasing the cost of goods and services, it is a necessary monetary force for our economic system to spur growth and support existing government and corporate debt obligations.
Vaccines are now being distributed and expectations are high that they will spur consumer confidence and kick-start the real economy and job market into realized and sustainable growth. The first and second quarters of 2021 will shed light on the pace of recovery with highly anticipated data releases of corporate earnings, GDP, unemployment rates, and manufacturing data. While the recovery is likely to continue trending upwards, much debate remains regarding how long it will take for the economy to fully recover to pre-COVID levels.
Over this past year, our daily lives and routines have been uprooted like never before. Although these changes were sudden and abrupt, we have all taken the necessary steps to adapt and make the most out of the circumstances. Our business has also adapted; the most notable of which is choosing not to renew our office lease and continue to work from our home offices. We are so incredibly grateful that our business can continue its operations without any disruptions during these times - a feat in which so many other businesses and industries are struggling to adapt to this “new normal."
A collective sigh of relief was felt by the world while turning the calendar to 2021. Our optimism is shared with you that this new year will bring in a renewed sense of optimism, peace, and prosperity for us all!
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.
Citations:
1. The Wall Street Journal, December 31, 2020
2. CNBC.com, December 11, 2020
Disclaimers:
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.
