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JANUARY 2021


END-OF-YEAR MARKET REVIEW

While we know the turning of the digit from 0 to 1 didn’t change the alignment of the universe, December’s developments make it easier to approach the new year with a feeling of new possibilities. Vaccines are being distributed, the major market indices show between modest and stellar growth and some of the sectors of the economy most diminished by the pandemic are demonstrating strength.

As Raymond James Chief Investment Officer Larry Adam put it, “December punctuated a surprisingly strong market year with an exclamation point.”

For much of the year, the story in equities has been about big technology stocks and then everything else – the tech-focused NASDAQ closed the year up 43%. Over the last couple of months market strength has broadened, and December continued this trend with small-cap stocks, international equities and lagging sectors like Energy and Financials outperforming the average.

The ongoing pandemic is expected to dominate the economic outlook in the first part of the year, according to Chief Economist Scott Brown, with continued restraint on consumer services. As vaccines are distributed, people should become more comfortable going out again. Activity in face-to-face industries, such as travel, hotels, restaurants and in-person entertainment, should pick up substantially in the second half of the year.

The Federal Reserve is expected to remain accommodative, with short-term interest rates remaining low through 2023. The recent fiscal aid package will provide important support in the near term. All the good news, of course, comes as COVID-19 continues to hold record high rates of cases and vaccinations are expected to continue into the middle part of the year. Though we may be at the beginning of the end, it’s still not the end.

Washington settles its “will they or won’t they”

 The $900 billion support package passed by Congress and approved by the White House will provide support through the spring for small businesses, state-run unemployment insurance, the vaccine rollout, and direct cash to many Americans. We’re now looking at further actions, possibly in March, Washington Policy Analyst Ed Mills said, which is when many of these supports will sunset. The shape and scope of a next stimulus package likely depend on the outcome of the two Senate runoff elections in Georgia, and how the economy weathers its entry into spring.

The global picture

 Global equity markets are riding near all-time highs despite the pandemic’s backdrop as governments and central banks sustained support through the year. The narrative through the year was similar to the U.S. As European Strategist Jeremy Batstone-Carr said, “New-economy digital and environmental transformation sectors, supported by healthcare, performed strongly. In contrast, ‘old economy’ value sectors such as banks, airlines, energy and leisure performed poorly.” And also as in the U.S., there appear to be opportunities here to capitalize on the return of strength across a broader market. With a Brexit deal, Europe-wide fiscal supports and stimulus around the world, “economic prospects for the next 12 months and beyond feel considerably brighter.”

The bottom line

 We’re not out of the weeds yet, but there seems to be real momentum behind the market and an opportunity to potentially pick up value from stocks most tied to an economic recovery, as well as some possible stability from 2020’s top performers. Still, there is a good chance we’re going to see bumps in the road.

Additional Resources

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