Current Market Observations

by William Henderson, Vice President / Head of Investments
For the week that ended February 19, 2021, the Dow Jones Industrial Average returned a nominal +0.2%, barely positive while the two broader indices were both negative for the week with the S&P 500 Index falling –0.3% and the NASDAQ –1.1%. With last week’s mixed results, returns nonetheless remained positive on a year-to-date basis. Year-to-date, the Dow Jones Industrial Average has returned +3.2%, the S&P 500 Index +4.2% and the NASDAQ +7.8%. For the week, the 10-year U.S. Treasury note moved significantly higher by 13 basis points to a post-pandemic 1.29%. 

No one can question, that the economy still is not “normal,” but the markets sure are acting that way. Year-to-date returns, noted above, are decent and certainly point to a positive year overall. Further, last week’s economic releases around industrial production, housing and retails sales were strong. Everything seems to be COVID-19 related. According to Johns Hopkins University, fresh COVID-19 cases for the week ending Feb. 14 were the lowest since October, at 2.7 million, a modest 2.5% increase in total infections from the previous week, the weakest gain since the start of the pandemic and less than half the rate seen a month earlier. Lastly, corporate profits (EPS) announcements continue to beat expectations, credit spreads are narrowing and capital expenditures by corporations are increasing. Soon, we are going to see rebounds in the sectors that were most battered by the virus-related economic shutdown.

Even as Treasury Secretary Yellen calms warnings about inflation, investors are fleeing bonds amid fears that inflation with heat up and return. The rise in the 10-year Treasury to 1.29% last week certainly shows investors are worried about bonds. Yields move opposite direction to prices and rising bond yields can hurt investors. The bigger story here is not bonds but instead the stock market which has multiple tailwinds supporting further positive movements. President Biden’s stimulus package, whether it is $1.4 or $1.9 trillion is going to be huge. Treasury Secretary Yellen and Fed Chair Powell are going to be patient around inflation moves and fully supportive of the administration’s efforts with fiscal stimulus. As mentioned, COVID-19 cases are down, the vaccine is being widely distributed and national herd immunity is expected by mid-summer or sooner.   

Things may not be “normal,” but normal is closer than we think. A common misstep all investors should avoid is trying to time the market, and 2020 showed just how detrimental timing the market could be for investors even in the short term. Stay focused on the long-term objective and realize “normal” is coming back.  

Current Market Observations

by William Henderson, Vice President / Head of Investments
The markets continued to move into record high territory last week looking past COVID-19 and forward to additional stimulus, greater distribution of vaccines and a long-awaited recovery in employment. As expected, Fed Chair Jerome Powell also stuck with his dovish tone last week reminding us that the Fed has no intention of lifting from the economic accelerator for a long time. For the week ended February12, 2021, the Dow Jones Industrial Average returned +1.0%, the S&P 500 Index +1.2% and the NASDAQ +1.7%. Last week’s returns piled onto an already positive year for the markets. Year-to-date, the Dow Jones Industrial Average has returned +3.0%, the S&P 500 Index +4.9% and the NASDAQ at +9.4%. For the week, the 10-year U.S. Treasury note moved only one basis point higher to 1.16%.   

We have talked about M2, the Money Stock of savings deposits, bank deposits and retail money market fund balances, several times in The Weekly Commentary. The chart above from the Federal Reserve Bank of St. Louis shows M2 sitting at record levels and indicates graphically how much cash is sitting on the sidelines waiting to be released into a post-COVID-19 economy. An additional stimulus package of $1.5 to $1.9 trillion will only add to those reserves. As we reach herd immunity and the magic 75% of the population vaccinated, that cash will be put to work. Sectors like leisure, travel, energy, and retail will see a surge in activity. It will be gradual and the journey back to normal will be bumpy and winding, but it is in sight and the markets are seeing the end game not the path.

I feel like this column often returns to the same thing: a dovish Fed, a willing Treasury Secretary, an able Democratic majority party across the government, and vaccine distribution when coupled with the sidelined cash only points to a very healthy economy in the second half of 2021. Several firms are predicting double-digit GDP prints (10%-11%) in 3Q & 4Q 2021.    Investors should look past the clamor, and instead focus on the end game described above. It is interesting to note that on years when the S&P 500 Index returns greater than 10%, there are between three and five market corrections that year of 5% or more.  Why does that matter? It is a reminder to investors that corrections are normal in healthy markets and part of long-term investing. 

Current Market Observations

by William Henderson, Vice President / Head of Investments
Investors shrugged off economic setbacks such as a weaker than expected jobs report and pushed stocks higher by the end of the week hitting new records across the board. Additionally, Janet Yellen, the newly installed Treasury Secretary, pushed for rapid fiscal stimulus while ignoring the potential for inflation. Such dovish commentary pushed the 10-year U.S. Treasury note to 1.15% by the end of last week.  For the week that ended February 5, 2021, the Dow Jones Industrial Average returned +3.9%, the S&P 500 Index +4.7% and the NASDAQ +6.0%. The strong returns from last week moved the averages well into positive territory for the year; with the Dow Jones Industrial Average returning +1.9%, S&P 500 Index +3.6% and the NASDAQ at +7.6%. As noted above, the 10-year U.S. Treasury note moved higher by eight basis points to 1.15%.   

With the modest rise in Treasury yields, the yield curve, the slope of which gives an idea of future interest rates and economic activity, is at its steepest since 2017. The steepening yield curve signals comfort by Treasury and Fed that the economy is healing and expectations of upcoming healthy inflation. While making the case for President Biden’s $1.9 trillion economic relief package, Treasury Secretary Yellen noted on CNN February 7 that “too rapid inflation was a risk that needed to be considered and that policy makers have the tools to deal with that should it materialize.” 

Other than the slightly weaker January payroll report of only +49,000 new jobs added, there were plenty of positive economic reports last week. The Institute for Supply Management’s service survey topped expectations and the new-order and hiring components pointed to stronger growth ahead and durable-goods orders topped expectation as well. The economy will get a healthy boost from more stimulus payments, if not from a bipartisan effort than from the Democrats own $1.9 trillion package. The final driving power behind last week’s rally in the markets was improving Covid-19 news. The weekly number of new cases continued to drop and new vaccines, including one from Johnson & Johnson, will be on the scene soon.   

With some much noise from the media, investors oftentimes lose sight of the long-term objective which is saving for retirement or another similar financial goal. In contrast, clear financial goals, a disciplined investment process and a long-term approach is how investors can achieve their objectives. 

Current Market Observations

by William Henderson, Vice President / Head of Investments
Uncertainty from Washington and continued sloppy and inefficient roll out of the COVID-19 vaccine put pressure on the markets last week and all three major averages posted negative returns for the week. The Dow Jones Industrial Average returned -3.3%, the S&P 500 Index -3.3% and the NASDAQ -3.5%. The returns from last week moved the averages into mixed territory year to date. With the Dow Jones Industrial Average and S&P 500 Index both with negative year-to-date returns at -2.0% and -1.0% respectively, while the NASDAQ remains positive for the year at +1.4%. The 10-year U.S. Treasury note moved down two basis points to close the week at 1.07%.

President Biden’s latest stimulus plan calls for a $1.9 trillion package. The counter-offer stimulus plan from Senate Republicans called for a smaller $600 billion package. Whichever is the outcome, the result is clear, more government stimulus money is on the way to consumers and the economy.    

Economic data released last week was mixed with 4Q real GDP rising only 4.0%, which was less than the 5.5% some economists had predicted. However, capex was a strong +13.5% and housing up a stunning +33.5% for the quarter. Clearly, investment is driving the economy, and everyone is looking ahead to the successful widespread distribution of the COVID-19 vaccine. Last week, Fed Chairman Jay Powell was quoted stating the obvious to the investment community: “the key to growth will be the vaccine rollout.”   

Last week we saw some interesting trading in the markets as retail investors handed the hedge fund community losses in a few widely traded short sells. Tailwinds of consumer reserves, Fed liquidity, further government stimulus, and a successful vaccine from at least four pharmaceutical firms outweigh the economic headwinds. Stay diversified and stick to your long-term financial plan. 

Current Market Observations

by William Henderson, Vice President / Head of Investments
Last week, the three broader market indices posted positive returns with the growth clearly outperforming value as investors moved to technology and communications related equities. The Dow Jones Industrial Average returned just +0.02%, the S&P 500 Index +1.2%, and the NASDAQ +3.3%. All three indices are now well into positive returns territory for the full year, with the Dow Jones Industrial Average at +1.4%, the S&P 500 Index showing +2.4% and the NASDAQ at a healthy +5.1%. While technology stocks showed strong gains for the week, cyclical sectors like energy, financials and materials declined on the week. Despite strong housing and jobless claims data released last week, the 10-year Treasury yield ended lower on the week at 1.09%.

Goldman Sachs noted “by the end of trading on Friday, January 22, 2021, the S&P 500 had recovered +70% from its March 2020 low.” More importantly, they continued, “history suggests that there is more room to run in the market even after 2020’s strong rally. During past U.S. economic expansions, investors have enjoyed positive one-year returns 87% of the time, and >10% drawdowns only 4% of the time.”  

Adding to history, we have a willing Fed providing liquidity and stability to the markets. It is important to remember the adage: “Don’t fight the Fed.” Further, Jay Powell and this Fed Team are as transparent as any group since the GFC. Every Fed Governor is repeating the “Lower for Longer” plan regarding interest rates and we believe them. Until the economy is safely in growth mode and the impacts of COVID-19 are waning, this Fed will keep the liquidity pump primed and give unlimited backstops to the market to assure stability.

The newly formed Biden Administration has been very clear with their intentions to combat COVID-19 with effective vaccine distribution thereby reversing the economic damage done by the pandemic. However, each U.S. state is going about the vaccination task with its own rules and processes with no real consistency of distribution. This is lending anxiety to consumers and the markets as the process of vaccinating most Americans is still uncertain and confusing. Our key themes remain the same: effective distribution of vaccines, a willing Fed, pent up consumer demand and a strengthening manufacturing sector. All together they equal a strong bullish sentiment for the year. Patience, as always, is a virtue.

Current Market Observations

by William Henderson, Vice President / Head of Investments
All three broader market indices showed negative returns for the week as portfolio rebalancing reallocating took place. The Dow Jones Industrial Average returned (-.91%), the S&P 500 Index (-1.48%) and the NASDAQ (1.54%). Market average for the full year 2021 remain in positive territory with year-to-date figures at +0.73 for the Dow Jones Industrial Average, +0.39% for the S&P 500 Index and +0.87% for the NASDAQ. Washington was relatively calm, and the markets are looking at a Martin Luther King Jr. holiday shortened week punctuated by the inauguration of President Biden and a peaceful transition of government.

The market will begin a laser-like focus on President Biden and his immediate actions as the new Commander in Chief. Already, President-elect Biden has announced his plans on a flurry of executive orders after his inauguration. Some will roll back Trump administration orders like immigration restrictions and others will be forward actions such as rejoining the Paris climate agreement, a mandate on mask wearing during travel and an extension on the pause on student loan payments. A clear focus on the distribution of the COVID-19 vaccine will remain and attention will be paid to the seemingly slower than expected rollout and distribution of vaccines that has thus far taken place. To be sure, mass vaccination, herd immunity and a roughly 75% vaccination rate is the catalyst the economy needs to continue its recovery. 

President-elect Biden also announced the proposal of an additional $1.9 trillion stimulus package early in 2021. Even with a full Democrat-controlled Congress, another $1.9 trillion on top of December’s $900 billion stimulus may be a bit of a pipe dream for Biden and could have difficulty getting approved. All the fiscal and monetary stimulus aside, experts agree that the key to releasing the $20 trillion of cash in money market funds, savings accounts and commercial bank accounts into the economy remains solely focused on the distribution of the COVID-19 vaccine. Each positive indicator of a rebounding economy; whether it be record December e-commerce sales or strong foot traffic at U.S. ski resorts, runs smack into the pandemic and its needed vaccine. 

The market will continue to take its cues from further government intervention in the form of fiscal stimulus, fourth-quarter and year-end corporate earnings releases and developments and improvements in the distribution of the COVID-19 vaccine. We believe the Biden administration will focus on the vaccine, an additional stimulus package and “green” initiatives that a loosely unified government will be able to get behind and move forward. Patience, diversification and a sound financial plan will be critical in 2021. 

Quarterly Commentary – Q4 2020

View/Download PDF version of Q4 Commentary (or read text below)


In an eventful Q4, the stock market performed very well, as the S&P 500, Nasdaq 100, and Dow Jones Industrial Average were up 12.15%, 13.09%, and 10.73%, respectively. News was largely supportive of stocks this quarter, as a clear Presidential winner was announced, multiple vaccines entered distribution and a second fiscal relief bill was passed. On a full-year basis, the Nasdaq 100, which is populated mostly by technology companies, delivered a nearly 49% return, its best year since 2009, while the bellwether S&P 500 Index gained 18.4% and the “seasoned economy” Dow increased almost 10%. International and Emerging Market stocks also had strongly positive performance this year.

2020 was astonishing in that both the stock market and the economy (as measured by GDP) experienced their most rapid declines and corresponding recoveries in history. In response to lockdowns – which portended a nearly totally dormant nation – the Federal Reserve acted swiftly and vociferously by lowering interest rates and buying treasury bonds, thereby injecting much needed liquidity into a frightened financial market. Also buoyed by a large fiscal stimulus bill in March, the markets recovered as it became clear that COVID’s negative economic impacts would be mostly transient.

Fixed Income
Interest rates collapsed to nearly zero in 2020 as a result of central bank action and investor flight to safe haven assets. Indeed, the 10-year treasury bond touched a historical nadir of 0.52% on August 4, down from 1.88% at the start of 2020. The 10-year treasury – a good proxy for the holistic interest rate environment – spent much of the year close to 0.70% and sits today just above 0.90%. Bond prices rise when interest rates fall, so investors experienced capital gains in their fixed income holdings. However, likely the most important impact that the rate decline had was on stocks, as investors passed on paltry bond yields in favor of equity investments.

The economic fundamentals heading into 2021 are firmly optimistic: several vaccines are entering distribution, a second fiscal bill will have positive impacts, and yet, interest rates remain in the basement (which is both stimulative to the real economy and to stocks). The question, however, is to what extent such fundamentals are already reflected in asset prices after such a robust market recovery beginning on March 23. Another salient question on the mind of investors is to what degree trends which strengthened during the pandemic – such as e-commerce, food delivery and teleconferencing – will persist, or give way to “the old way” of doing things. We expect healthy economic performance as the American population gets inoculated through the year and, as always, will be following the markets closely and adjusting our views as fit.

Current Market Observations

by William Henderson, Vice President / Head of Investments
The first week of trading in 2021 continued the market rally we saw for a good portion of 2020. For the week, the Dow Jones Industrial Average returned +1.61%, the S&P 500 Index +1.83% and the NASDAQ + 2.43%. Technology and “green” stocks continued to do very well as the realization that a Biden administration bolstered by a Democrat-controlled U.S. Congress will push green energy, improved technology, and eventually infrastructure. 

Last week saw events in Washington DC that sadly shocked the world. Protesters stormed the U.S. Capitol building and temporarily shut down the activities of Congress. Perhaps Americans wrongly assumed that protests, riots, and general unrest was over with the U.S. Presidential Election finally behind us, but this was not the case. Political uncertainly continues to pose risks to the markets and is difficult to predict and quantify. For example, as noted above, the technology sector is poised to grow much stronger than the overall economy, but we are seeing politics impact social media companies like Twitter, Facebook and Parler as some sites banned President Trump from use. What will the outcome and impact be on those companies is yet to be played out, but it creates, and unknown risk and markets hate unknown risks. Arguments will abound about whether social media companies are broadcast companies, news outlets, utilities or just fun pastimes and what, if any, regulations should be imposed on their actions. The argument that social media companies are utilities is specious at best, as you can live without Twitter but not without water, electricity or even a phone. But our U.S. Congress has reign to do many things, all of which create risks and unknowns. 

The U.S. Federal Reserve continues to be the one core bedrock of the economic recovery with a firm position by Fed Chair Jerome Powell to keep interest rates low for as long as necessary. The Fed Funds Rate, the interest rate that banks charge other banks for lending excess cash, remains near zero, while the 10-year U.S. Treasury Note moved a few basis points higher last week and now stands at 1.11%. Finally, there is steepness in the yield curve. Banks make money when the yield curve is steep – they borrow low and lend high. This week, we will see the first of the large banks reporting fourth quarter earnings – JP Morgan Chase, PNC Bank and Wells Fargo, among others, are all slated to report by week’s end.  

Headwinds exist today from the COVID-19 pandemic and serious political unrest. Tailwinds also exist with investments in technology, green energy and infrastructure and a willing Fed to keep the pump primed for economic expansion. Lastly, a pent-up consumer is sitting on the sidelines waiting for a vaccine and an “all clear” sign for leisure activities to open up again.

The Numbers & “Heat Map”

Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.

The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.




GDP increased at a 33.1% annualized pace in Q3. The U.S. economy has now recovered about 2/3 of its output lost to the COVID-19 pandemic.



In Q3, S&P 500 earnings were down 7-8% from the year-ago period. This compares to Q2 2020, in which S&P 500 earnings were down by 1/3 from the comparable 2019 quarter. Companies will begin reporting Q4 earnings in the coming weeks.



The unemployment rate was stagnant in December at 6.7%. This is the first month since April in which the unemployment rate did not improve.



The Fed plans to allow inflation to temporarily overshoot its 2% target such that the long-term average is 2%. Inflation has been tame since the Great Financial Crisis, less than 2%.



Congress passed its second major fiscal relief package of 2020, the most recent one amounting to $900 billion in stimulus. The bill currently provides for $600 in cash payments to American citizens, however, Congress is in negotiation to deliver an additional check for up to $2,000, as President Trump has requested.



The Federal Reserve supported asset markets with unprecedented speed and magnitude in response to COVID-19.




There are few, if any, looming geopolitical risks that could upset the economic recovery.



Although economic activity mostly remains below 2019’s levels, improvement has occurred across nearly every measure since the April nadir. With multiple vaccines in distribution, a second fiscal package in place, and interest rates low, 2021 is positioning to be a strong economic year.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

Current Market Observations

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.