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.