Market Update – January 9, 2021

Click 2 minute video below for comments regarding events of this week.

Stocks moved higher during the tumultuous first full week of 2021. The sad and disturbing events at the United States Capital did not quell markets’ positive momentum fueled by optimism for increased economic growth this year. Election results from the two Georgia Senate races mean that Democrats will control all three branches of government, albeit with very slim majorities in the House and Senate

For the week, the S&P 500 Index closed up 1.8%, while the Dow Jones Industrial Average rose 1.6%. Unemployment data again indicated a labor market in flux: first-time unemployment claims of 787,000 were in line with expectations, while continuing claims ticked downward to a total of 5.1 million. The December jobs report released this week was significantly worse than expected, as the number of nonfarm payroll jobs fell by 140,000 – the first monthly decline since April. While the unemployment rate held at 6.7%, the prognosis for a full labor market recovery is weak until widespread Covid-19 vaccinations take hold.

With Democrats controlling both houses of Congress and the presidency, markets are anticipating significantly higher levels of government spending this year – for coronavirus relief, infrastructure projects, and for state and local governments. While it remains to be seen what type of tax reform results from the incoming government, any business tax increase would serve as a headwind to continued corporate earnings growth as the reopening accelerates.

While this expected higher level of spending is likely to promote higher economic growth, there is some concern that it will also cause higher inflation later on this decade. Currently, stocks are more attractive than bonds on a relative basis due to low interest rates, valuations, and future inflation expectations. We don’t expect inflation to creep markedly higher in the short term, since significant slack still remains in the labor market, and supply/demand imbalances still permeate the economy.

We do anticipate the worldwide economy continuing to climb out of the depths of the pandemic-induced recession. International stocks (both developed and emerging markets), as well as small- and medium-sized U.S. stocks, have continued to outperform broader U.S. markets in the new year – continuing a trend that began in the second half of 2020. Because these market segments tend to lead out of recessions, we believe that including them in a broadly diversified investment strategy is vital.

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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