by William Henderson, Vice President / Head of Investments
The so-called Santa Rally continued last week as all three major stock market indices turned in positive numbers for the week ended December 18, 2020. The Dow returned +0.4%, the Standard & Poor’s 500 Index returned +1.3%, and the NASDAQ returned +3.1%. Last week’s returns added to what is turning out to be a very strong year for market returns. Returns are also varied across indices proving the importance of a diversified, well-invested portfolio. Year-to-date, the Dow has returned +5.8%, the S&P 500 +14.8%, and the NASDAQ Composite +42.2%. These returns are quite stunning when we think of all that the year 2020 has thrown at the market. The stock market has digested and plowed through a major global pandemic, an economic disaster in the form of a double-digit world-wide recession, and a costly and divisive U.S. presidential election.  

Thankfully, in response to the above economic headwinds, we have seen dramatic fiscal and monetary stimulus in the form of relief packages from the U.S. Congress as well as a Federal Reserve that reacted by moving interest rates to near zero and adding as much liquidity to the markets as needed. Beyond repairs to the economy, Operation Warp Speed has allowed the fast-tracking creation and release of a vaccine for COVID-19. Last week, the vaccine was delivered and administered across the United States and will continue to be quickly and widely administered across the nation. Further, the U.S. Congress finally reached an agreement on a $900 billion second stimulus package which includes $600 billion in direct payments to Americans, $300 billion in weekly supplemental unemployment insurance and additional funds for small business assistance. 

To be sure, there are headwinds in front of a continued economic recovery. In the face of the release and distribution of COVID-19 vaccines, new cases and hospitalizations across the United States reached all-time highs last week and several states including, Pennsylvania, New York, and California imposed new or additional lock down and travel restrictions. These headwinds are offset by strong performance in the technology and consumer discretionary spending sectors as working from home, becomes the norm rather than the exception. Working from home requires a reliable internet connection with strong bandwidth, cloud applications and virtual software capabilities supplied by companies like Zoom and Microsoft. Consumers are also showing resilience in spending with entertainment expenditures being replaced by food delivery options rather than dining out, for example. Lastly, the Federal Reserve, following a recent round of stress tests, will allow banks to engage in share buybacks in the first quarter of 2021. Stringent rules remain in place for dividend payments and other capital requirements but the lift on buybacks shows there is significant improvement in bank capital cushions strengthened by record earnings.  

This week is a Christmas Holiday shortened week, but much will be packed into the trading periods as tailwinds and headwinds compete for directionality of the economy and markets. Remain focused on the long-term outcome and a diversified portfolio and let’s hope for a continued Santa Claus Rally into 2021.