Market Commentary - December 23, 2020
Clint Carpenter, Director of Operations
With the end of the year rapidly approaching, who would have thought we’d end up here looking at a year-to-date NASDAQ return of nearly 43%, while the S&P 500 is up about 14% and the DOW is up only around 5%. That’s the widest divergence we’ve seen between the main the three stock indexes in more than a decade!
Treasuries have remained low, although our longer notes have increased somewhat. It's nowhere near where we started at the beginning of 2020, however. The 1-year is paying .09%, the 10-year is at .95%, and the 30-year is yielding 1.7%. We’re seeing average mortgage rates across the country at about 3.9%, although there are certainly lower rates to be had depending on your market and your lender. If you’re wondering if you should be considering refinancing, certainly get in touch and we’ll give you our opinion.
Gold is currently $1,863/oz, off quite a bit from record highs earlier this year. WTI Crude oil is also down today, but on a recovery track from lows earlier this year. It’s currently priced at $47/bbl.
Kris Venezia, Associate Vice President of Investments
I want to start with a question I have been getting over the last several weeks, "Why does the market keep going up?"
Well, there are several reasons that have made investors bullish despite the ongoing pandemic.
The vaccine breakthroughs. The vaccine breakthroughs give investors an easy way to look ahead to a rosier future. I am not a doctor, but the general assumption from medical experts is that people should be vaccinated by fall of 2021.
The market is always trying to look ahead. Investors are buying into companies that they believe will benefit in what's being called a "reopening" trade. For this reason, we have seen airlines, oil companies, hotels, and financials really outperform since the vaccine news was announced.
More stimulus. Congress continues to push for more stimulus with the House and Senate overwhelming passing a nearly trillion-dollar COVID relief bill. Senate Majority Leader Mitch McConnell, House Speaker Nancy Pelosi and President-elect Joe Biden have all said they want to put together another package sometime in early 2021.
At the time of this writing, President Trump has criticized the bill and it's unclear if he'll sign the legislation passed by Congress.
Consumer activity. Despite the pandemic, consumers have been out spending money and there has not been widespread shutdowns.
There are certain parts of the economy that are still being stung. Restaurants who do not have easy takeout options and bars are definitely hurting. However, outside of that, data indicates consumers are spending money on home improvement, clothes and a lot of takeout. A lot of alcohol, too.
As far as shutdowns go, there appears to be no political appetite to institute shutdowns like we saw earlier this year. There are parts of the country that have put in place a curfew or put limitations on places like restaurants, but we just aren't seeing the same type of shutdowns like we did in April.
The election. Investors were thrilled with the results of the election. Going into the election, there were fears of a blue wave and the policies that would bring about. We did not see that happen.
The House is a razor-thin Democratic majority and the Senate will be tight no matter what happens in Georgia.
This means that we will not see any of the more dramatic ideas that far-left or far-right members of Congress bring up. Even better for investors, the slim majorities in Congress will motivate Democrats and Republicans to pursue ideas that are more popular. These popular ideas could include topics like tax cuts or government spending for certain initiatives (ie stimulus checks).
As we head into the new year, there are several issues we have our eyes on.
What items will the Biden administration make the top priority once he takes office?
How will the relationship between U.S. and China change under the Biden administration?
Will we see a drop in consumer activity after the holidays with the high number of cases in the United States?
Will the Fed keep their foot on the pedal through 2021, or will they take their foot off the gas as the vaccine roll out continues?
Daryl Eckman, President & CEO
When it comes to talking about politics, there’s a difference between economic policies and social policies. We concentrate more on economic policies that are put in place.
At this time, there hasn’t been a major shift on the current economic policies. It could change under the Biden administration, but there hasn’t been any hints, except for possible increased taxes. The U.S. is still the best protected free enterprise economy in the world. It is still a hot bed for technology, innovated technology, invention and protection in private property.
I do not see much inflation in the near future, the Fed is still interested in keeping interests rates low and buying treasuries. As a result, we’ve been moving out of those long-term bonds.
We are continuing to check portfolios and monitor how their allocated for the future. We have had conservatively balanced portfolios still get nice rates of return.
We’re not entirely backing out of tech stocks, but we are rebalancing the portfolios.
We’re also encouraging our clients to stay in touch with us. Please, reach out to us if you haven’t heard from us, and we will try to call you more often.