View/Download PDF version of Q4 Commentary (or read text below)

Equities
In an eventful Q4, the stock market performed very well, as the S&P 500, Nasdaq 100, and Dow Jones Industrial Average were up 12.15%, 13.09%, and 10.73%, respectively. News was largely supportive of stocks this quarter, as a clear Presidential winner was announced, multiple vaccines entered distribution and a second fiscal relief bill was passed. On a full-year basis, the Nasdaq 100, which is populated mostly by technology companies, delivered a nearly 49% return, its best year since 2009, while the bellwether S&P 500 Index gained 18.4% and the “seasoned economy” Dow increased almost 10%. International and Emerging Market stocks also had strongly positive performance this year.

2020 was astonishing in that both the stock market and the economy (as measured by GDP) experienced their most rapid declines and corresponding recoveries in history. In response to lockdowns – which portended a nearly totally dormant nation – the Federal Reserve acted swiftly and vociferously by lowering interest rates and buying treasury bonds, thereby injecting much needed liquidity into a frightened financial market. Also buoyed by a large fiscal stimulus bill in March, the markets recovered as it became clear that COVID’s negative economic impacts would be mostly transient.

Fixed Income
Interest rates collapsed to nearly zero in 2020 as a result of central bank action and investor flight to safe haven assets. Indeed, the 10-year treasury bond touched a historical nadir of 0.52% on August 4, down from 1.88% at the start of 2020. The 10-year treasury – a good proxy for the holistic interest rate environment – spent much of the year close to 0.70% and sits today just above 0.90%. Bond prices rise when interest rates fall, so investors experienced capital gains in their fixed income holdings. However, likely the most important impact that the rate decline had was on stocks, as investors passed on paltry bond yields in favor of equity investments.

Outlook
The economic fundamentals heading into 2021 are firmly optimistic: several vaccines are entering distribution, a second fiscal bill will have positive impacts, and yet, interest rates remain in the basement (which is both stimulative to the real economy and to stocks). The question, however, is to what extent such fundamentals are already reflected in asset prices after such a robust market recovery beginning on March 23. Another salient question on the mind of investors is to what degree trends which strengthened during the pandemic – such as e-commerce, food delivery and teleconferencing – will persist, or give way to “the old way” of doing things. We expect healthy economic performance as the American population gets inoculated through the year and, as always, will be following the markets closely and adjusting our views as fit.

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.

by William Henderson, Vice President / Head of Investments
Another holiday-shortened trading week for the markets and again they did not disappoint investors with each of the broader stock market indices posting a positive week. The Dow Jones Industrial Average returned +1.6%, the S&P 500 Index +1.8%, and the NASDAQ + 0.9%. The positive returns for the week added to already strong year-to-date returns. Year-to-date, the Dow has returned +9/7%, the S&P 500 +18.4%, and the NASDAQ Composite +44.9%. Given where we were in March of 2020, and all that the economy dealt with in the year, these returns are very healthy and certainly rewarded investors that stayed the course and remained invested and diversified throughout the year.  

After the pandemic hit in February/March of 2020, and the world’s economies shut down, the markets reacted as expected with sharp sell offs across every major market and every major asset class. At the bottom of the market in March 2020, the S&P 500 Index was down -32% from its earlier peak in February of 2020. After the stock market sold off and governments around the world imposed a lockdown to halt the spread of the new COVID-19 virus, the U.S. Economy fell into a deep double-digit recession. Almost immediately, we saw coordinated actions from President Trump, the U.S. Congress and the Federal Reserve. The President created Operation Warp Speed to find a vaccine for the virus, Congress passed multiple stimulus packages designed to aid families and the Federal Reserve, led by Jerome Powell, enacted multiple plans and actions designed to provide needed liquidity and stability to the fixed income and equity markets. Then, in November, a vaccine was developed, and distribution began in December of 2020. The concerted efforts of the government, the Fed, and the private sector paid off and there was now light at the end of the proverbial tunnel. As fast as the market fell in March of 2020, we saw a V-Shaped bounce back in markets, and by year-end 2020 each of the broader indices hit new record close figures.  

As we move into 2021, we have several strong tail winds that could continue to move markets higher. Widespread distribution of the COVID-19 vaccine is just beginning. Each dose delivered moves us closer to a full opening of the U.S. Economy. For most of 2020, consumers, who make up at least 60% of the economy, were on the sidelines and spent very little – conversely – they saved a lot and stockpiled record amounts of cash. According to the Federal Reserve Bank of St. Louis, $20 trillion of cash sits in commercial bank accounts, money market funds and personal savings accounts. The Fed’s Zero Interest Rate Policy (ZIRP) and further plans to keep interest rates low for as long as needed, gives corporations access to nearly free money for capital expenditures, hiring of employees, dividends or stock buy backs – all of which will help with the economic recovery well into 2021. With a Biden administration, we may also see further fiscal stimulus in the form of cash to families. At the start of this new year, more economic tailwinds exist than headwinds, which puts us in place for a heathy year. Stay the course, stay invested, stay diversified and stick to your financial plan.

by William Henderson, Vice President / Head of Investments
Last week’s holiday-shortened trading week allowed markets to close the week with mixed results. The Dow Jones Industrial Average and the S&P 500 Index both show negative returns for the week at -0.34% and -0.52% respectively, while the NASDAQ closed in positive territory at +0.31%. Year-to-date, the Dow has returned +8.3%, the S&P 500 +16.7%, and the NASDAQ Composite +44.0%. 2020 continues to provide investors with strong returns across the broader markets despite historic headwinds.

President Trump signed the $900 billion COVID-19 Stimulus Bill which eventually sends $600 to eligible Americans as part of the relief package. This recent stimulus package coupled with the distribution of the COVID-19 vaccine and a willing and able FED providing market liquidity continues to fuel the strong economic recovery. These obvious tailwinds will be present in 2021 as well, and many economists are now predicting a strong GDP growth estimate for 2021. We talk more about this in our 2021 Outlook video above. Short trading days, second-string trading desks and actions like tax lost harvesting and window dressing by portfolio managers could move this week’s thinly traded markets lower even in the face of positive news. At worst, results will be confusing.  

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.

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.

by William Henderson, Vice President / Head of Investments
For the week that ended December 4, 2020, stocks reached further into record territory with the Dow Jones Industrial Average closing comfortably above 30,000, at 30,218. For the week, The Dow returned +1.1%, the Standard & Poor’s 500 Index returned +1.7%, and the NASDAQ returned +2.1%. The weekly gains piled onto previous gains to put year-to-date figures well into the positive zone. Year-to-date, the Dow has returned +5.9%, the S&P 500 +14.5%, and the NASDAQ a staggering +38.9%. These numbers are all the more remarkable when factored in to what 2020 threw at the markets: a global pandemic, a huge double-digit recession and a complicated and costly U.S. Presidential Election. 

Last week, news of European Union (EU) regulators considering emergency authorization for Pfizer/BioNTech’s COVID-19 vaccine for wide-spread release sparked a rally early only to be stymied later in the week after Pfizer acknowledged supply chain problems. The general flip-flop has plagued the markets all year. We get good news that is quickly followed by bad news. We’ve seen this with 1) the vaccine but increasing COVID-19 case abound; 2) a stimulus package is discussed but not passed by congress; 3) a decided presidential election but a run-off in Georgia for two senate seats. It should not be news to readers of this report that we always talk about one clear constant that the markets are relying on for support – the Federal Reserve. The Fed has lowered rates to zero, announced monetary policy steps to sure up the bond markets and stated over and over that it will provide all needed stability and liquidity to assure the economic recovery.

Sure, the news and economic reports are as negative as they are positive, but the markets seem to be seeing past this noise and looking to 2021 when a vaccine for COVID-19 could be widely available and distributed around the world. Consumers, who have been storing up cash, will then be released to spend again and we could see a very strong economic rebound following 2020. The larger macroeconomic risks that exist today make it more important than ever for investors to keep their goals front and center and stick with their investment plans. It is much better to focus on long-term results over full market cycles.

by William Henderson, Vice President / Head of Investments
A holiday shortened trading week did not stop the markets’ strong weekly performance as all three broad market indices showed positive results for the week. The Dow Jones Industrial Average returned +2.2%, The Standard & Poor’s 500 index returned +2.3% and The NASDAQ Composite returned +3.0%. These weekly returns piled onto year-to-date figures that are shaping up 2020 to be a year of healthy gains for equities. As of November 27, 2020, year-to-date returns for the key market indices stood at +4.8% for the Dow Jones Industrial Average, +12.6% for the S&P 500 Index and +36.0% for the NASDAQ Composite. 

Fortunately, the economy continues to display impressive resilience across multiple sectors, such as housing, auto sales, retail sales, manufacturing, and most services including health care and information technology. We’ve seen increased demand for services such as cloud computing and web-based services as working from home becomes the norm rather than the exception. Further, as an offshoot of strong housing, the home remodeling and home improvement sectors have also been very strong. Conversely, travel and leisure sectors continue to suffer.  According to the FAA, Thanksgiving holiday travel was 50% lower than 2019. Lastly, elevated concerns of COVID-19 in the United States and elsewhere casts a pall on a positive path for the economy. 

Three things leave us hopeful for a continued economic recovery in 2020 and into 2021. First, and most important, the Federal Reserve is likely to keep rates low and provide as much liquidity and accommodation as the economic recovery requires. Secondly, online and virtual holiday shopping could be very strong this year as the consumer is flush with cash and suffering from pent up spending demand. Finally, two major pharmaceutical firms have filed with the FDA for approval of their COVID-19 vaccine: Moderna and Pfizer.  November has wrapped up and looks to be one of the best market returns for a November ever. Keep an eye of e-commerce spending and continued strength in housing as the year comes to close. 

by William Henderson, Vice President / Head of Investments
Equity markets were mixed last week as headlines threw bad news after good news. Early in the week, positive COVID-19 vaccine news improved investor sentiment, but rising new cases and increased activity restrictions across states cast concerns on the economic recovery. The potential for a divided U.S. Government which could drag on any new fiscal stimulus is also weighing on the markets. For the week, the Dow Jones Industrial Average returned -0.3%, the Standard & Poor’s 500 Index returned -0.8%, while the NASDAQ returned +0.2%. The benchmark 10-year U.S. Treasury note stood at 0.88% at the end of the week.

As noted above, the short-term market moves are impacted by headline news events. That said, parts of the economy continue to do very well, such as the U.S. housing market. October existing home sales were +4.3% year over year and new starts were +4.9% year over year, both beating economists’ expectations. Further, according to Goldman Sachs, the NAHB housing market index reached a record high of 90 for November. Housing remains a resilient and sturdy foundation of the economic recovery. The American consumer continues to show strong financial wherewithal. According to the Federal Reserve Bank of St. Louis, Real Disposable Personal Income stood at $15.8 trillion in September 2020, up from $15.0 trillion in September 2019. 

Further, Average Hourly Earnings of All Private Employees was $29.50/hour, up from pre-COVID-19 March 2020 at $28.69/hour. Lastly, according to Bloomberg, consumers have used their cash piles to pay down debt and secure record-low mortgage rates due to an ultra-easy Fed policy fueling a steady wave of refinancing. 

The Thanksgiving holiday will give us a shortened work week and potentially quieter trading days. The Christmas shopping season will kick-off with Black Friday this week but what does that mean when the shopper is confined to their home? Watch for online retailing to explode this year with firms that have the logistics for effective online shopping benefiting most. Black Friday could morph into Cyber Friday as working from home collides with closed malls and a consumer flush with cash.  

We have three pharma companies announcing a vaccine: AstraZeneca, Pfizer, and Moderna. The Fed remains on guard to supply as much liquidity and stability needed to fuel the economic recovery. A COVID-weary consumer stands on the sidelines flush with cash but locked down as COVID-19 cases spike. In the short term, the markets continue to waffle on good news/bad news headlines but year-to-date, all three broad indices remain positive: the Dow Jones Industrial Average at +2.5%, the Standard & Poor’s 500 Index at 10.1%, and the NASDAQ at +32.1%. Remain committed to long-term goals, see through the noise and watch the markets prove they are more efficient than the consumer.