As we close the books on 2020, we encourage investors to pause and take some time to reflect (this will be our final Market Commentary of the year). Without a doubt, it’s been an incredibly difficult year in this country. Many lost loved ones. Small business owners are doing everything they can to keep their doors open, and workers — especially those in leisure and travel industries — are struggling.
But amid these incredible challenges, there is hope. Thousands of people have now been vaccinated for the coronavirus, as scientists developed a vaccine in record time. Though many industries remain pressured, the economy has largely stabilized and returned to growth — and we believe the expansion is poised to continue in 2021. Late Sunday, Congress reached a deal that provides economic aid to help Americans bridge the next few months to what we expect will be a much brighter spring in 2021.
For investors, 2020 was a roller coaster. Markets descended into a recession at the fastest pace in history, only to come roaring back and post records through the remainder of 2020. Those who stuck by their plan through this turbulent year have been rewarded for their patience and mettle. Did you stick with your plan?
Now, when markets are near records, is the time to reflect on your performance for the year and the course ahead. When markets dipped in spring, or in 2018, how did you feel? Were you unduly worried about your market exposure? Did your confidence in the plan waiver? How will you react during the next downturn? If you have concerns, now is the time to reach out to your financial professional to talk about your plan and make any adjustments if needed. Do this now, while stocks are near highs and relatively calm rather than waiting for the market to force your hand during the next sell-off. Remember, you are in the driver’s seat of your plan, not the market.
Now, before we dive in, we want to wish our readers happy holidays and a prosperous, healthy 2021.
WEEK IN REVIEW
Lockdowns Push Jobless Claims Higher: Initial jobless claims for the week ending Dec. 12 rose 23,000, to 885,000. Digging deeper into the numbers, the largest increases have been in Illinois and California, where lockdowns have returned, and, again, service-oriented businesses were most acutely impacted. Illinois and California are more populous states, which is a big reason we’re seeing initial claims swing back and forth lately. We hope the government will provide the financial aid people in these states need.
From a macro view, it’s clear that localized lockdowns are impacting a smaller, more concentrated portion of the economy — namely, industries that thrive when people gather or travel. That’s different than in spring, when the impact was felt broadly across most industries. Even with a lower retail sales number than expected, the Atlanta Fed’s real-time GDP tracker is still on pace for 11 percent quarter-over-quarter growth (it may slip in the coming weeks, but that doesn’t mean the recovery has derailed). It shows that while some industries are facing challenges, there are still very strong parts of the economy — homebuilders, for example, remain historically optimistic, as housing permits and starts are still coming in ahead of expectations.
Expansion Story Intact: Two key measures of economic growth remained in expansion territory in December. The IHS Markit Manufacturing PMI came in at a strong 56.5, while the services side hit 55.3 for the month. Manufacturers have some wind in their sales given a combination of low wholesale inventories and rising demand into 2021. That’s a nice backdrop for expanded activity as companies rebuild inventories to catch up with current demand and potentially expand as the COVID-19 end date gets closer with the help of vaccines. Speaking of vaccines: The FDA granted emergency use of Moderna’s vaccine, which rolled out of the first distribution centers over the weekend.
A Holiday Season Sales Dip: Retail sales came in a bit soft in November, perhaps a sign that consumers held back some spending heading into the critical holiday shopping season. U.S. sales dipped a seasonally adjusted 1.1 percent in November, according to the U.S. Commerce Department. Department stores experienced the steepest drop, 7.7 percent, followed by restaurant sales, down 4 percent. Online sales, home improvement stores and supermarket sales were all higher.
A Dovish Close to 2020: The Federal Reserve, as expected, has every intention of remaining dovish until the economy and labor market reach the Fed’s intended targets (inflation moderately above 2 percent for “some time” and maximum employment). Fed Chairman Jerome Powell said the bank would also increase its Treasury and mortgage-backed securities purchases to help foster “smooth market functioning and accommodative financial conditions.” That should help keep credit flowing to households and businesses.
“Overall, our interest rate and balance-sheet tools are providing a powerful support for the economy and will continue to do so,” Powell said Wednesday.
THE WEEK AHEAD
Again, we’ll note that there will be no commentary next week as we enjoy the holidays (and hope you will as well). We’ll be back in the new year to dig into markets week by week. Of course, markets will still be open for a short week, and here’s what’s on tap.
Key Data for This Week: This week we’ll get a read on consumer confidence in December, which should reflect both vaccine optimism and broader concerns about the coronavirus and renewed restrictions. Personal income, consumer spending and core inflation are also on tap for Wednesday. Keep an eye on initial jobless claims this week. As we stated above, there’s going to be some back and forth with these numbers, particularly as larger states balance the economy, rising cases and hospital capacity. Durable and capital goods orders are also worth noting, given our comments about manufacturers replenishing inventories and potentially expanding to meet higher demand in 2021. Higher spending on durable and capital goods are a good leading indicator that companies are looking to expand capacity.
Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.
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As the chief investment officer at Northwestern Mutual Wealth Management Company, I guide the investment philosophy for individual retail investors. In my more than 25 years of investment experience, I have navigated investors through booms and busts, from the tech bubble of the late 1990s to the financial crisis of 2008-2009. An innate sense of investigative curiosity coupled with a healthy dose of natural skepticism help guide my ability to maintain a steady hand in the short term while also preserving a focus on long-term investment plans and financial goals.