The conflict between a more volatile short-term economic outlook and the anticipation of a strengthening long-term rebound continued this week. Stock markets finished the week lower, pulled down by weak employment data, the lack of a compromise Congressional relief bill, and increasing chances of a “no-deal” Brexit at year end. News of the first Covid-19 vaccine doses being administered this week in the United Kingdom, as well as the possibility that emergency use approval in the U.S. could be forthcoming shortly, continues to provide hope for an end to the pandemic. Our belief is that the next several months could still exhibit significant market volatility as multiple short-term roadblocks exist; however, we believe that the longer-term outlook is significantly brighter.
For the week, the S&P 500 Index closed down 1.0%, while the Dow Jones Industrial Average fell 0.6%. Year to date, the S&P has gained 13.4% while the Dow is up 5.3%. Weekly unemployment figures indicated that the rising numbers of coronavirus cases and resulting governmental restrictions have at least temporarily stalled the labor market’s positive momentum. First-time unemployment claims rose sharply to 853,000 last week, the highest tally since September and well more than consensus expectations. Continuing claims also fared worse than anticipated, increasing for the first time since August to a total of 5.8 million.
Several market concerns remain an impediment to growth into springtime 2021. Obviously, it is a remarkable scientific achievement to have developed viable coronavirus vaccines in the short period of time since the virus was discovered. Unfortunately, hiccups in delivery are almost unavoidable – from logistical issues like production, distribution, and storage to medical issues such as the limited number of U.K. vaccine recipients that suffered significant allergic reactions from the injection. Working through these challenges will drive concerning news headlines and pass through to markets. Additionally, the labor market’s struggle to return to pre-pandemic employment levels remains a headwind, as does the protracted legislative negotiations to pass additional fiscal relief as a bridge to broad immunity.
Longer term, our outlooks for both the economy and stocks are favorable. Once the vaccine has taken hold, an accelerated return to economic activity is likely. Consumer cash savings will likely flow to the services portion of the economy, satisfying pent-up demand for dining and travel experiences. A recovery in services would match the positive 2020 numbers from the manufacturing side, and this coordination would help corporate earnings to quickly approach pre-pandemic levels. Many corporations have also stockpiled cash during the pandemic, which would allow for increased hiring, capital expenditures, and stock buybacks – all of which are helpful to stocks. Monetary support from worldwide central banks and the likelihood of additional fiscal relief in the U.S. should also boost stock prices in 2021 and beyond.
As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.
We are committed to providing timely and actionable communication to our clients. If you’re looking for more financial insights, check out our detailed quarterly investment commentary. You also might be interested in two other new articles on our blog that address practical matters. One post offers tips on leveraging health savings accounts to save for retirement, while another article covers the ins and outs of avoiding cyber scams. As always, please reach out with any questions. We are here for you!