Stocks advanced this week, even as increasing Covid-19 cases and economic restrictions persisted across the country and around the world. While several key economic metrics reported positively this week, the services side of the economy continues to struggle. Although President Biden was officially sworn into office this week, prospects for quick passage of an extensive new coronavirus fiscal stimulus bill through Congress dimmed as the hurdles of narrowly divided House and Senate bodies remained in place.
For the week, the S&P 500 Index closed up 1.9%, while the Dow Jones Industrial Average rose 0.6%. Year to date, the S&P is up 2.3% while the Dow has gained 1.3%. Unemployment data swung positive this week, as first-time unemployment claims were slightly better than expected – falling to 900,000. Continuing claims also beat expectations, declining to 5.05 million. The housing market continues to be a bright spot, as new home start numbers were the best since September of 2006 and building permits granted also far exceeded expectation. Manufacturing data also indicated continued strength, with new order volume and sector employment numbers both moving higher. These pieces of positive economic news reduced the urgency to pass additional fiscal relief in the minds of some legislators, especially those concerned with the ever-expanding level of Federal debt.
Coronavirus restrictions continued to dampen economic growth prospects in Europe, as increasing case numbers have led many nations to impose additional measures. Germany reduced its 2021 economic growth projection from 4.4% to 3% based on more extensive lockdowns, and United Kingdom Prime Minister Boris Johnson indicated that his country’s third coronavirus lockdown could last into the summer months. Until the virus is brought more under control, the possibility of a double-dip recession in the Eurozone and U.K. remains elevated.
Small-cap and mid-cap U.S. stocks, as well as emerging markets stocks, continued their 2021 outperformance over other market segments this week – in keeping with our expectation for a broader economic recovery in 2021. Since stocks have risen so far, so quickly, it is entirely possible that we will face a normal market correction of 5-10% sometime during the first half of 2021. However, we continue to anticipate an accelerated recovery in the second half of the year and still favor stocks over bonds on a relative basis.
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.