Weekly Market Update - December 18, 2020

U.S. Stocks Hit Record Highs As Hopes For Another Stimulus Package Grow And The Fed Remains Accommodative Through 2023

• All of the major U.S. stock market indices advanced on the week and set new highs, reversing last week’s modest declines

• The tech-laden NASDAQ and the small-cap Russell 2000 both jumped 3.1% on the week, significantly outpacing the respectable 1.3% gain for the S&P 500 and the modest 0.4% gain for the DJIA

• In a reversal of past weeks, but more in line with most of 2020, it was the Information Technology sector that led the other sectors with a gain of 3.2%, followed next by the Consumer Discretionary sector’s 2.3% gain

• There were only two sectors painted red this week and Energy was the biggest loser with a drop of 4.3%, a big reversal of the trend in the past few weeks

• Most of the news on the week was once again COVID-related, with the first vaccines being administered throughout the U.S. and elsewhere around the world

• The Federal Reserve met this week and affirmed that it would keep rates very low, likely into 2023

• Wall Street also sensed that another stimulus package was closer, with expectations that it might be close to $900 billion

• On the negative side, retail sales for November were less than expected and weekly jobless claims were higher than expected

• The U.S. Dollar Index fell to its lowest level since April 2018

• The 10-year Treasury inched up to 0.95%

New Record Highs Reached. Again.

The major U.S. stock indices hit new record highs again this week as expectations for another stimulus package grew, the Fed remained committed to its accommodative policies and COVID-vaccines started rolling out across the country.

While there had been a rotation of sectors over the last few weeks, with Energy outpacing all others and Information Technology not occupying the top spot, this week saw the sectors perform in line with how they have behaved for most of the year. More specifically, the Information Technology sector led the way with a gain of more than 3%, helped by large gains from Apple and Microsoft. And the Energy sector dropped more than 4%, despite oil prices hitting a high not seen in about nine months.

Although Congress has been negotiating the next stimulus bill for weeks, it appeared that there was a bit of a breakthrough this week as a bipartisan group of lawmakers seemed to agree on a package worth over $900 billion, including direct payments to individuals and families. With each side giving up demands, the sentiment in Washington seemed to be that Congress would remain in session until a deal was finalized.

The rollout of the Pfizer/BioNTech coronavirus vaccine at the beginning of the week seemed to put Wall Street (and Main Street) in a good mood and then a few days later the FDA gave Moderna the green light to produce its vaccine, potentially doubling the number of vaccines available by year end. The flip side, however, was discouraging as infections and fatalities continue to reach new highs and lockdowns continue to be imposed.

Retail Sales Slump & Jobless Claims Jump

The pandemic continues to hamper businesses and this week received two significant data points that were worrisome: retail sales and jobless claims.

In the middle of the week, the Commerce Department Reported that retail sales dropped 1.1% in November, which was dramatically more than expected and the worst showing since the pandemic started. From the Commerce Department’s press release:

• Advance estimates of U.S. retail and food services sales for November 2020 were $546.5 billion, a decrease of 1.1% from the previous month, but 4.1% above November 2019

• Total sales for the September 2020 through November 2020 period were up 5.2% from the same period a year ago

• Retail trade sales were down 0.85% from October 2020, but 7.1% above last year

• Non-store retailers were up 29.2% from November 2019, while food services and drinking places were down 17.2% from last year

Jobless Claims Jump

The following day, the Department of Labor announced weekly jobless claims at 885,000, also worse than expectations and at the highest level since September. From the DOL’s release:

• In the week ending December 12, the advance figure for seasonally adjusted initial claims was 885,000, an increase of 23,000 from the previous week's revised level.

• The previous week's level was revised up by 9,000 from 853,000 to 862,000.

• The 4-week moving average was 812,500, an increase of 34,250 from the previous week's revised average.

• The previous week's average was revised up by 2,250 from 776,000 to 778,250.

Markets Around the World

• The pan-European STOXX Europe 600 Index was up 1.5% this week

• Germany’s DAX Index rose 3.9%

• France’s CAC 40 was up 0.4%

• Italy’s FTSE MIB gained 1.3%.

• Japan’s Nikkei 225 Stock Average rose 0.4%

• China’s CSI 300 Index advanced 2.3%

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Sources: census.gov; dol.gov; msci.com; factset.com; fidelity.com; Nasdaq.com; wsj.com; Morningstar.com

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