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And This is How We Start the New Year

The stock market ended higher last week as the nation dealt with the siege of the D.C. Capital and new economic data that is causing concern. What I find most interesting is that, both events barely fazed advancing stocks.
The Dow Jones Industrial Average was up over 600 points on Wednesday when the chaos in D.C. started. By the end of the trading day when the mayhem was at its peak, the stock market retreated slightly ending the day up over 400 points. More bad news came on Friday when the Labor Department released December’s jobs data. Employers cut 140,000 jobs in the last month of 2020, the first decline since the pandemic hit the country last spring. Not surprising, restaurants and bars drove the decline. Other entertainment venues where crowds gather and the hospitality industry were also negatively affected.
What the market did focus on was the election results in Georgia, which resulted in Democrats controlling both houses of Congress. This strengthens president-elect Joe Biden’s agenda and will likely result in another round of fiscal stimulus checks going to tax-payers. The election results have also caused a number of analysts to increase growth prospects for the U.S. economy. Goldman Sachs now expects growth of 6.5% in 2021 compared to their previous forecast of 5.9%. They also expect a stimulus package of $750 billion in late February or March.
Despite all the challenges we still face, the market is focusing on the recovery more than anything. Let’s hope that trend continues.
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The Markets and Economy
  • American workers can look forward to faster commutes to the office in a post-pandemic world. Many employers are expected to continue to utilize remote working where possible thus reducing the number of cars on the roads.
  • There haven’t been so many single-family homes under construction in the U.S. since 2007. But unlike the housing bubble of 2007 which was caused in part by sub-prime mortgages, this one might be caused by investors. Tens of thousands of houses expressly built to rent are being constructed by investors betting that Americans will keep flocking to spacious suburban living even if they can’t afford to buy.
  • U.S. workers continued to apply for unemployment aid at an elevated level at the end of 2020. Also, demand for imported consumer products pushed the November trade deficit in goods to a record level.
  • OPEC plus another large group of oil-producing countries led by Russia agreed to a complex deal to hold production at current levels. Additionally, Saudi Arabia announced it would reduce production by one million barrels a day starting in February.
  • Due to a rise in new orders, factories across the globe boosted their output as 2020 drew to a close. Analysts expect a continued rise in new orders during the first months of 2021.
  • The U.K. is beginning to see the effects on financial markets of its withdrawal from the EU. Britain’s brexit from the group resulted in major trades in European stocks directed to other exchanges; most notably Amsterdam and Paris. Previously, investors throughout the EU could buy shares of domestic companies on the U.K.’s FTSE 100 stock exchange. However, on January 1, that option ended forcing investors to channel trades through their own exchanges.
  • First, they will. Then they won’t. Then they will again. The New York Stock Exchange’s flip-flop on delisting three Chinese telecommunications companies targeted by an executive order from President Trump kept changing last week. At the end of the week, the NYSE said it received “new specific guidance” from the Treasury Department’s Office of Foreign Assets Control which showed the three companies are covered by the President’s order.
  • Several automakers reported brisk sales in the U.S. to finish 2020 on a strong note. The results are fanning optimism that auto sales can make their way back to pre-Covid-19 levels.
  • The yield on the benchmark 10-year U.S. Treasury closed above 1% for the first time since last March. The rise shows increased bets on additional fiscal stimulus after Georgia’s runoff Senate election.

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
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