Market Update December 2020
November stock market returns were for the record books, as the S&P 500 rose nearly 12%, the Dow Jones Industrial Average had its best month since 1987, and the Russell 2000 was up 18% for its best month ever. The announcements of 3 vaccines spurred a rotation into the most economically-sensitive areas of the market, as investors began to see a light at the end of the tunnel for a return to normalcy. The market strength over the past month bodes well for returns over the next 6-12 months in our view. The S&P 500 had one of its best months in history last month, and, although it might be counterintuitive, stocks tend to move even higher after a big month.
I have a positive outlook for stocks over the next year, due to expectations for the reopening process, continued low-interest rates, and the potential for fiscal stimulus to boost the economy as needed. This view also includes the likelihood of a divided government, which probably reduces the chances of aggressive legislative changes that can alter the outlook over the longer term, including tax increases.
I believe that corporate earnings can rebound to at least $170 per S&P 500 share, which leads me to think that the S&P 500 can move higher by 5-10%. However, it would be normal to see equities consolidate in the short-term as they digest the past month’s strength. Concerns over the virus spread have resulted in increased shutdowns, which may result in economic softness in the next couple of months, particularly if we don’t get additional fiscal aid. Given the recent run-up in stocks, we would patiently accumulate stocks with new money and use pullbacks as better buying opportunities. With so much focus on the “recovery” areas right now, don’t forget about the areas that operated the best during the pandemic (i.e. large-cap tech-oriented, health care, and some consumer sectors). Many stocks in these favored areas have been consolidating for the past several months and appear to be near better entry points for the short term.
I like the idea of that barbell-like approach, investing in sectors that can do well in a work-from-home environment, but also in areas that could benefit from a return to “normalcy,” like energy, materials, and travel and leisure. If interest rates continue to rise, long-term bonds are likely a bad investment, so I’d lean toward short-term bonds instead. The US dollar has been weak recently, and that trend looks like it will continue. If it does, emerging markets stocks could be very interesting, and commodities might rise in value, too.
We’re closing in on year-end deadlines, so if you have any capital gain or loss considerations that we should be aware of or charitable gifts to make, I encourage you to take care of these things prior to December 20. Sometimes these things take a few days, especially with many people trying to do this at the same time, so I’d rather end up with a few days to spare than to run out of time.
All of us at Signature Wealth Strategies hope you have a wonderful holiday season, a Merry Christmas, and a Happy New Year! Here’s to hoping that 2021 is a lot less stressful than 2020!
As always, past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is made up of 3,000 of the largest U.S. stocks. Keep in mind that individuals cannot invest directly in any index. Index performance does not include transaction costs or other fees, which will affect investment performance. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence Individual investor results will vary. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Scott Mitchell and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.
