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.

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.