Weekly Market Update - January 1, 2021

Large-Cap Stocks Close Out The Year With New Record Highs As Another Stimulus Package Is Finalized

• The U.S large-cap stock indices wrapped up the year with new closing highs while the small-cap stock index retreated from its high set the week before

• For the New Year’s Day-shortened trading week, the S&P 500 and DJIA both moved up 1.4%, while NASDAQ moved up half of that with a 0.7% gain and the smaller-cap Russell 2000 retreated 1.5%

• The main factor this week pushing stocks higher was arguably President Trump’s signing of the $900 billion stimulus package, which was not a foregone conclusion as the week started

• Of the 11 S&P 500 sectors, only one declined as the Energy sector pulled back modestly (- 0.4%), the Utilities and Consumer Discretionary sectors both moved up more than 2%, and the Communication Services, Financials and Health Care sectors all rose just shy of 2%

• The 10-year Treasury yield was essentially unchanged on the week, although it did end 2020 down about 100 basis points

• Speaking of year-end performance, the major U.S. markets performed admirably, with NASDAQ leaping an astonishing 43.6% on the year and the Russell 2000 (+18.4%), S&P 500 (+16.3), and DJIA (+7.3%) all turning in very respectable YTD performance for investors

Stocks Close Out the Year With Solid Gains

For the last trading week of 2020, the major U.S. large-cap indexes crested new all-time highs, while the small-cap index retreated on the week. Sure, investors were happy that the DJIA, S&P 500 and NASDAQ all ended the week with positive returns, but those were overshadowed by the fact that each of them ended 2020 with very solid yearly performance, including NASDAQ turning in its best annual performance since 2009.

Trading was very light this week as the market was closed on Friday due to New Year’s Day and there was not a whole lot of economic news received by Wall Street either.

Consistent with most of 2020, it was the Energy sector that lagged all the others, dropping slightly on the week (-0.4%), but ending the year with a significant decline of more than 37%.

The Next Coronavirus Relief Bill is Done

Wall Street and Main Street breathed a collective sigh of relief when President Trump signed the $900 billion COVID-relief bill, which will provide much-needed relief to small businesses and direct payments to individuals and families. And while there was chatter that the direct payments might be increased from $600 to $2,000, those hopes were put on hold until at least 2021.

There was also more optimism as another vaccine produced by AstraZeneca and Oxford University was approved by UK officials, although that was muted by a few distribution challenges of vaccines here in the states. Further, there was some worry over a new strain that was detected here in the U.S. too, although government health officials did their best to tamp down concerns.

The week’s economic calendar was also light this week, but mostly positive. Weekly jobless claims fell whereas most expected an increase. And home prices moved up more than expected in October, although pending home sales dropped.

Jobless Claims Move Down

On Thursday morning, the Department of Labor reported that weekly jobless claims dropped by 19,000, which was positive as most had expected an increase. From the release:

• In the week ending December 26, the advance figure for seasonally adjusted initial claims was 787,000, a decrease of 19,000 from the previous week's revised level.

• The 4-week moving average was 836,750, an increase of 17,750 from the previous week's revised average.

The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending December 19, unchanged from the previous week's unrevised rate.

Pending Home Sales Decline Again

On Wednesday, the National Association of Realtors reported that pending home sales declined in November, with month-over-month activity declining across the country.

• The Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, fell 2.6% to 125.7 in November, the third straight month of decline.

• Year-over-year, contract signings climbed 16.4%.

• An index of 100 is equal to the level of contract activity in 2001.

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Sources nar.realtor; dol.gov; msci.com; factset.com; fidelity.com; Nasdaq.com; wsj.com; Morningstar.com

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