The Bottom Line
● Stocks overcame a pair of contentious Senate runoff races, protestors storming the US Capitol, and a disappointing employment report to advance for the week and close at new all‐time highs.
● Bond markets have begun to price in higher inflation, greater‐than‐expected fiscal stimulus, and increased Treasury issuance with the 10‐year Treasury yield jumping 20 basis points, its biggest weekly increase since June 5, to close at 1.12%, its highest level since March 27.
● Manufacturing activity, construction spending, and new vehicle sales all improved in December, but nonfarm payrolls came in well under expectations.
New year brings new record highs
U.S. stocks appeared hungover on the first day of trading in the New Year as the major averages fell sharply amidst concerns about surging global coronavirus cases and angst ahead of the Georgia Senate runoff elections. However, they recovered throughout the week as expectations of more government aid increased once Democrats appeared to gain a majority in Congress with wins in those two Georgia Senate races. On Wednesday things took a dark turn in Washington when, following a Trump rally, a crowd breached the US Capitol. Yet even in light of the Capital Building turmoil the S&P 500 finished higher on the day. Friday brought a disappointing December employment report that saw the first decline in job creation in eight months. But investors again focused more on the prospects of new additional stimulus measures and helped stocks close the first week of 2021 just as they ended 2020, at record highs. The disappointing employment data may have actually bolstered expectations of even bigger future fiscal relief measures from the incoming administration. Bond yields certainly seem to be signaling that scenario as they jumped 20 basis points on the week to reach their highest level since March.
Digits & Did You Knows
TIME IN THE MARKET — The S&P 500 Index has gained an average of +10.9% per year (total return) over the last 50 years (i.e., 1971‐2020). The index has been positive in 16 of the last 18 years. Over the long‐term, the S&P 500 has been up during 40 of the last 50 years, i.e., 80% of the time. Going back to 1950, the S&P 500 has been positive for 54% of 17,866 trading days, 60% of 852 months, 67% of 284 quarters and 73% of 71 years (source: BTN Research).
JOBLESS EXTREMES — The lowest (3.5%) and the highest (14.7%) unemployment rates in the U.S. in the last 50 years both occurred in 2020, and they took place just two months apart (source: Department of Labor, BTN Research).
Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
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