Market Update – December 5, 2020

Stocks finished higher this week, as investors continued to look beyond rising COVID-19 case numbers and mixed unemployment data. The expectation of imminent vaccine rollouts continues to drive optimism for an expanded worldwide economic revival in 2021, which in turn has helped propel stock prices higher.

For the week, the S&P 500 Index closed up 1.7% while the Dow Jones Industrial Average rose 1.0%. Year to date, the S&P is up 14.5% while the Dow has gained 5.9%. By almost any measure, stocks have continued their amazing recovery from the depths of the pandemic. Not only did all three major U.S. indices (S&P 500, Dow Jones Industrial, and NASDAQ) touch record highs this week, but their returns for the month of November all were historic. The S&P posted its best-ever November return, the Dow recorded its best return in any month since 1987, and the NASDAQ achieved its best November return since 2001. Small-cap, mid-cap, and international stocks continued their fourth quarter resurgence. As these categories tend to lead markets out of recessions, their upward spike signals that they may continue to outperform other market sectors in 2021 as the recovery picks up speed. Even though a tremendous amount of money remains in cash and money market instruments, November witnessed a record amount of money flowing into stock ETFs – more than $80 billion – as overall appetite for risk investments increased.

Labor market data continued to signal uncertainty. Weekly unemployment news exceeded expectations: first-time unemployment claims fell more than expected to 712,000 last week, while continuing claims also fared better than anticipated, falling to 5.5 million. However, the November payroll report released Friday showed that the overall pace of hiring has slowed significantly, as only 245,000 jobs were added in the month – a little over half of consensus expectations. The unemployment rate ticked down to 6.7%, but part of that decline is due to a significantly lower labor participation rate as many individuals have stopped actively looking for work during the pandemic.

The housing market continues its torrid 2020 pace. In addition to overall increasing sales prices, skyrocketing numbers of transactions on existing homes, and elevated numbers of new homes under construction, the closely affiliated mortgage industry is also red-hot. So far in 2020, a record $4 trillion (and counting!) in mortgages have been originated. A boom in refinancing caused by low interest rates and increased home values accounts for a significant portion of the activity. It’s hard to imagine mortgage rates remaining this low – especially if the higher growth expectations in turn lead to higher longer-term interest rates. If you haven’t yet investigated refinancing your existing mortgage, it may make sense as we head into 2021.

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!

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