U.S. stocks ended down this week, reversing gains brought on by more promising vaccine news earlier in the week. Moderna joined Pfizer with strong results from their phase three COVID-19 vaccine trial, and both companies now claim greater than 90% effectiveness with their vaccines. Over the past several weeks, stocks have risen as confidence in a positive vaccine outcome grows. However, the optimism this generates for continued economic recovery in 2021 must be weighed against the increasing trend in virus cases and hospitalizations around the globe.
For the week, the S&P 500 Index closed down 0.8% while the Dow Jones Industrial Average fell 0.7%. The Dow reached a new all-time high this week, coming within a whisker of the 30,000 level before giving back some of those gains at the end of the week. Year to date, the S&P is up 10.1% while the Dow has gained 2.5%.
Unemployment figures continued their rocky ride this week. First-time unemployment claims increased to 742,000 – contrary to consensus expectations. On the other hand, continuing claims followed their declining trend, falling by 429,000 to a total of 6.4 million. While we caution against reading too much into any one week’s data, a broader field of view shows a labor market that won’t begin to fully heal until a coronavirus vaccine is broadly deployed, which would allow the service sector of the economy to again become fully operational.
Even in light of the economic challenges we still face, money continues to flow into risk assets. Last week, more than $44 billion moved into stock funds – mainly sourced from the incredible amount of cash and money market funds still held by investors. It appears some people are becoming more comfortable with the prospect for stocks outperforming bonds and cash over the next few years. As we’ve mentioned before, continued low interest rates, global government relief spending, and the promise of a vaccine in the short-term support this view. But this does not mean we won’t have some choppiness in stock market returns over the next several months. The biggest short-term threat remains that the increasing spread of coronavirus will cause more governments to curtail economic activity in an effort to control the spread.
International stocks have shown recent promise; developed and emerging markets returns have outpaced their U.S. counterparts this quarter. In Japan, the Nikkei 225 Index recently reached a 30-year high. While it’s too soon to call this outperformance a persistent trend, there are several factors presently helping international stock performance. First and foremost, the viability of a potential vaccine helps all countries – U.S. or otherwise. Digging deeper, diminished election uncertainty, the likelihood of more predictable trade policy, and low interest rates coupled with moderate U.S. GDP growth all tend to make international stocks more attractive. A measured level of U.S. growth tends to cause investors to deploy more of their capital overseas in search of higher returns, as opposed to times when U.S. economic growth is very high (why invest anywhere other than America?) or very low (the U.S. is viewed as the safest haven in troubled times). A commitment to building globally diversified portfolios for our clients is one of our key investment tenets.
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!