Market Monitor: December Update
Headlines and Highlights
- Stocks log stellar month: Stock markets worldwide had one of their best months in years as investors focused on upbeat vaccine news rather than increasing coronavirus cases and hospitalizations. Returning to a record-high level, the S&P 500 had its biggest November gain since 1928 and second-best month overall since 1987 – at 10.9%, just shy of April’s 12.7% snapback. Small caps soared a best-ever 18.2%, value stocks outpaced growth stocks by 3 percentage points and international stocks turned positive for 2020 with a boost from the dollar’s continuing decline of 2.3% last month.
- Biden picks Yellen to succeed Mnuchin as Treasury chief: President-elect Joe Biden prioritized policymaking experience in naming Janet Yellen to one of the most powerful Cabinet posts, Treasury secretary. The nomination puts her in line to be not only the first woman to run the Treasury Department but the first person to have led the Treasury, the Federal Reserve and the White House Council of Economic Advisers.
- Holiday sales decline as COVID-19 spikes: American shoppers turned out in force online as the holiday retail season kicked off, but not enough to fully offset a big drop in in-store traffic. The National Retail Federation said 3 million fewer shoppers (186.4 million) made purchases online or in-store from Black Friday to Cyber Monday, spending $50 less per person than a year ago ($312 versus $362) as consumers navigated increasing restrictions amid a surge in COVID-19 cases. Consumer spending accounts for close to 70% of the U.S. economy.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- Countervailing recent U.S. economic trends – continued positive momentum in manufacturing and housing but softening in consumer confidence and the labor market – are likely to result in weaker growth than previously expected in the fourth quarter. This slowdown will likely be overlooked by markets given the success of drug trial efficacy results and reported imminence of the first vaccine distributions.
- While the recovery has slowed given the resurgence of COVID-19 cases and the absence of the next round of fiscal stimulus, we are confident it can endure this setback. A stimulus package likely will be passed by Congress early next year, bolstering our expectations for higher growth and a stronger economy in 2021.
- Janet Yellen’s selection to head the Treasury Department in the Biden administration is positive for markets. The Federal Reserve’s policies while Yellen chaired the bank from 2014-18 helped keep both economic growth and the longest-ever U.S. bull market on course. Her Fed experience also bodes well for healthy cooperation between the Treasury and the Fed at a time when government support will be critical to help the economy recover from the pandemic.
- The broadening of the market rally last month beyond this year’s winner – the tech sector – was an encouraging sign that this upward trend can be sustainable. Cyclical stocks – tied to the economy’s performance – outperformed technology, the downtrodden energy sector rebounded 27%, the previously slumping financial sector climbed 17%, and all but 33 of the 500 stocks in the S&P 500 rose in November.
- Despite the unprecedented amounts of stimulus provided by both the Federal Reserve and the Treasury Department this year, inflation remains subdued. The most recent data show the yearly inflation rate dipping to 1.2% in October, well below the Fed’s 2% target level. Although inflation may rise in the future, with pandemic-related economic restrictions in place and unemployment expected to remain elevated we do not see it rising to a concerning level any time soon.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice