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U.S. stocks rose early this week on promising news regarding Pfizer’s coronavirus vaccine, and the market held on to those gains through the end of the week. Although two Georgia seats remain undecided and control of the Senate remains unclear, it appears more likely at this point that divided government will prevail next year in Washington, D.C. The further away from the election we get, market movement will become dictated by COVID-19 case numbers, vaccine news, the size and scope of the next relief bill, and whether widespread lockdowns will be necessary to bring the virus to heel.
For the week, the S&P 500 Index closed up 2.2% while the Dow Jones Industrial Average climbed 4.1%. Year to date, the S&P is up 11.0% while the Dow has gained 3.3%. First-time unemployment claims fell more than expected to 709,000, and continuing claims also positively surprised analysts, declining by more than the consensus expectation to 6.8 million. Third-quarter corporate earnings have been mostly positive as businesses continue to recover from the effects of earlier pandemic shutdowns. Small-cap profit numbers have been especially encouraging, as smaller companies tend to lead out of recessions. The white-hot housing market continued to deliver impressive 2020 results, as median home prices rose 12% in the third quarter.
Assuming our expectation of divided government comes to pass, the most likely legislative compromises in early 2021 are in the areas of coronavirus relief and infrastructure. Additional spending in these areas, combined with continued accommodative monetary policy, would provide a favorable environment for stock prices. While there remains a small chance that the next round of relief could be accomplished in the lame duck session, it’s more likely to occur after the inauguration. The potential pitfall of delaying relief into 2021 is the chance that higher virus case numbers could lead state governments to re-impose lockdowns.
Internationally, developments in China continued to apply stress to the relationship with the United States. Beijing officials removed four prodemocracy lawmakers from Hong Kong’s local government, which led to the protest resignations of the remaining members of the body’s pro-democracy wing. Additionally, China reached agreement on a broad trade agreement with other regional nations (e.g. Japan, South Korea, Australia, and New Zealand), that threatens to diminish their reliance on the U.S. as a trade partner. While the interconnectedness between China and the U.S. remains extensive, these developments place further strain on an already contentious coexistence. Upon taking office, a prospective Biden administration would immediately be faced with this challenge.
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!