US stocks ended a roller coaster year at a new record high. After plummeting in late February and March as a result of the coronavirus and the resulting business shutdowns, the market rallied over the remainder of the year driven by Fed and US government stimulus, business reopenings, better than expected corporate earnings, and finally a variety of highly effective vaccines for COVID-19. Both the vaccine and the second pandemic relief bill were the main drivers of performance in December. The $900 billion relief bill provides stimulus checks for individuals, additional funds for the paycheck protection program, and funding for vaccine distribution. The Pfizer and Moderna vaccines received emergency approval and the vaccines began being administered during the month. The approval was a significant step forward as hospitalizations and case numbers have continued to hit new highs. Corporate earnings were surprisingly resilient after the shutdowns in the first and second quarter with much better than expected results over the second half of the year. Economic news over the month showed the US still rebounding, but struggling under the weight of increasing COVID-19 cases. The November jobs reports disappointed with 245,000 jobs added, less than half the gains of October, but the unemployment rate edged down to 6.7% from 6.9%. New unemployment claims remain elevated. Retail sales fell 1.1% and consumer confidence eased. The housing market was a strength of the economy over the year with home prices reaching record highs and more mortgages were taken out than any year on record.
Foreign stocks climbed in December on a variety of positive developments. The UK was the first western country to issue emergency approval of the Pfizer vaccine and begin distribution. However, a new, much more contagious strain of the coronavirus was discovered in the country and prompted new lockdowns and travel restrictions. After marathon negotiations, the European Union (EU) reached a spending deal for additional pandemic relief. The European Central Bank (ECB) announced they would increase their bond buying program from $607 billion to $2.25 trillion and extended it until at least March 2022. They also provided support for the banking system, boosting liquidity through several measures until June 2022. The EU reached a trade agreement with the UK over its exit from the country bloc averting potential business chaos if the UK left the country bloc at the end of the year without a deal in place. It puts an end to the Brexit saga that started four and a half years ago. OPEC members and a group led by Russia agreed to increase oil output by 500,000 barrels a day starting in January as they believe the worst of the pandemic is over. China’s economic activity continued to rebound in November. Industrial output, investment, and consumer spending all picked up pace in November and manufacturing hitting its highest level in a decade. Emerging markets outpaced developed markets over December, the fourth quarter, and the year.
Bonds posted gains to end the year that saw interest rates hit record lows and the Fed take unprecedented actions to help support the economy. Information released at the conclusion of the Fed’s December meeting showed officials expect the Fed Funds rate to stay near zero through at least 2023. The Fed has also been buying $80 billion in Treasurys and $40 billion in mortgage bonds a month and said that buying would continue “until substantial further progress has been made” toward broader employment and inflation goals. The 10-year Treasury yield ended the year at 0.93%, up from 0.84% to start December, but down significantly from the 1.92% where it started the year. Over the month and fourth quarter, credit and muni bonds were the top performing sectors, while over the year, credit bonds led the way. Longer term bonds outpaced shorter term bonds over December, the quarter, and 2020 as a whole.
|US Stocks (Russell 3000)||4.50%||14.68%||20.80%|
|Foreign Stocks (FTSE AW ex US)||5.50%||17.18%||11.47%|
|US Bond Mkt. (BBgBarc Int. Gov/Cred)||0.21%||0.48%||6.41%|
|Municipal Bonds (BBgBarc 1-10 Yr Muni)||0.35%||0.82%||3.95%|
|Cash (ICE BofA ML 3-Mo T-Bill)||0.01%||0.03%||0.66%|
There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Source: Morningstar, Inc.