Market Update – January 16, 2021

U.S. stocks edged lower this week, as both health and political concerns weighed on markets. In response to an aggressively increasing number of Covid-19 cases, hospitalizations and deaths worldwide, additional restrictions returned in many locations in an attempt to quell the spread. Logistical challenges of vaccine distribution, debate over the breadth of a new proposed stimulus bill from President-elect Joe Biden, and disappointing employment data all contributed to stocks moving lower. While the unprecedented second impeachment of President Trump seemed to do little to move markets, it certainly added to the extremely overcharged political climate in Washington.

For the week, the S&P 500 Index closed down 1.5% while the Dow Jones Industrial Average fell 0.9%. Year to date, the S&P is up 0.3% while the Dow has gained 0.7%. Unemployment data was significantly worse than consensus expectations this week. First-time unemployment claims rose by 181,000 to a total of 965,000, while continuing claims also rose to a total of 5.3 million. Looking beyond the headline numbers tells a story of a mostly positive ‘goods’ portion of the economy, coupled with a still-struggling ‘services’ sector. While a sizeable number of manufacturing businesses have been able to continue production (and maintain employment counts) in a safe and effective manner, lockdowns continue to dampen the employment prospects for those workers in service industries. Additional federal support for these affected individuals helps, but the costs continue to mount the longer the pandemic rages on.

The incoming Biden administration released details of a proposed follow-on coronavirus relief bill this week, combining potential areas of consensus with more contentious suggestions. Additional funding for small businesses, rental assistance, vaccinations, testing, and to help schools reopen could form the foundation for compromise. However, additional provisions for a higher minimum wage, significantly higher direct payments, mandatory paid pandemic leave, and higher amounts for state and local governments could cause friction in the evenly-divided Congress.

Virus concerns grew overseas this week; in response to increasing degrees of the outbreak, nations including Germany, Japan and Scotland implemented more restrictive measures. We continue to expect elevated volatility in financial markets during the first half of 2021, mainly due to shifting pandemic metrics and responses. Once the vaccine is well-distributed and immunization begins to take hold, we expect pressures to ease in the second half of the year.

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 look forward to continue partnering with you in 2021 and are committed to providing timely and actionable communication. Check out recent NBC WDIV Channel 4 interviews with Nathan Mersereau for tips to help get your finances organized. From considering Roth IRA conversions in light of anticipated future tax increases, to calculating net worth and bringing your financial team together, to updating your estate plan, there are many areas to review. You also might be interested in two articles offering 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. Let’s make a plan for 2021!

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