by William Henderson, Vice President / Head of Investments
For the week that ended December 11, 2020, U.S. stock markets pulled back a bit with each of the major indices turning in modest negative returns. For the week, The Dow returned -0.6%, the Standard & Poor’s 500 Index returned -1.0%, and the NASDAQ returned -0.7%. Last week’s pull back, however, was not significant enough to move any of the major indices into red territory for the full year. In fact, the major markets have given investors comfortable returns across the board. Year-to-date, the Dow has returned +5.3%, the S&P 500 +13.4%, and the NASDAQ Composite +38.0%.  

We continue to see positive notes impacting the economy. President Trump signed a stopgap spending bill on December 11, 2020 to avoid a government shutdown. Congress now has one week to agree on a full-year $1.4 trillion spending bill combined with COVID-19 relief. Lawmakers are squabbling over the details of another stimulus package with one group at $908 billion and another at $748 billion. The good news is that House Speaker Nancy Pelosi has agreed to speak with Treasury Secretary Steven Mnuchin so we could see an additional stimulus plan before year end. According to Gustave Perna, the army general who serves as Chief Operating Officer for Operation Warp Speed, the first shipments of Pfizer Inc.-BioNTech’s COVID-19 vaccines are scheduled to arrive this week in all 50 U.S. states. The widespread release of a vaccine for COVID-19 first by Pfizer, and quickly followed by Johnson & Johnson and Moderna by early spring 2021, is just what consumers and the markets are looking for to release pent up demand for spending. We have seen a faster-than-expected economic recovery and a concomitant rebound in risk assets like stocks; but yields on U.S. Treasury Bonds remain depressed. Don’t expect the Federal Reserve to raise rates anytime soon as they have clearly reflected a plan to keep rates lower for longer even in the face of higher inflation risks.  

What is important for investors is diversification. A thoughtfully diversified portfolio can weather different environments better than one that is stuck on a single style, geography or factor. A glance at returns for 2020 across the markets reinforces this notion as we have the Dow at a reasonable +5.3%, the NASDAQ posting a stellar +38.0%; and for fixed income, we have the Bloomberg Barclays US Treasury Total Return Index returning +8.0%. Diversification, when coupled with a sound financial plan, may be the last remaining free lunch for intelligent investors. There are just under three weeks left in 2020, a year that will be remembered long after the books are closed on the markets’ returns.