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.