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It’s official, 2020 is now in the rear-view mirror. While the last 12 months have surely taken their toll on life around the world, we have rebounded and now look forward to a new year with new opportunities. We also must keep a watchful eye out for any new challenges resulting in rounding up the usual suspects…inflation, unemployment, recession.

In spite of the problems posed by the pandemic, U.S. equity markets fared well last year. The S&P 500 was up over 16% and the tech-heavy Nasdaq posted a return of almost 44%. Now, we turn our attention to a new year and the beginning of a new earnings season. Fourth quarter 2020 earnings results will begin in a couple of weeks.

As of last Wednesday, we have seen a development that has only occurred eight times since 1980. The New York Stock Exchange Hi-Lo (NYSEHILO) index has remained above a 90% reading for 30 consecutive days. When this happens, the broad market tends to perform very well over the next few years. I won’t bore you with the details of the calculation of this index, but since it only happens approximately twice a decade and typically with positive results, we pay particular attention when it occurs.

As you can see from the chart, with the exception of 2004 and a slight blip in 2009, the S&P 500 has posted positive gains over the following two years after three months. It will be interesting to see how things progress this time.

If you have any questions, please contact me.

The Markets and Economy

So far, the U.S. has recouped 12 million of the 22 million jobs lost due to the pandemic. However, there has been a major shift in the types of jobs lost and gained. Jobs have declined at retail stores, restaurants, and bars but gained in warehouses and transportation businesses as e-commerce flourishes.
One indicator of an overheated market flashed red last month. Margin debt, the amount investors borrow to purchase stocks reached a record $722.1 billion through November according to the industry regulator, Finra.
Britain’s House of Commons approved a sweeping free-trade agreement with the EU late last week. The agreement was in response to the U.K.’s departure from the EU after being one of the bloc’s largest members for more than 40 years. The agreement, due to take effect on January 1, 2021, passed by a margin of 521 to 73 and was the last step in the exit process.
Strong demand pushed home sales to a 14-year high in October. Combined with a reduced inventory of homes for sale, prices shot up 8.4% higher.
Initial Public Offerings (IPO’s) soared to a new record in 2020. Companies raised $167.2 billion through 454 offerings as investors showed a continued appetite for a variety of business ventures.
The New York Stock Exchange will delist three of China’s largest telecom carriers this week. The move by the NYSE is in response to a U.S. order barring Americans from investing in companies it says help the Chinese military.
China’s leader, Xi Jinping, is taking a tougher stance at promoting a resurgent China unafraid to assert its interests. While the world’s second-largest economy still wields much power over the amount of business opportunity that exists within its borders, more and more nations are banding together to assert their right to hold Beijing accountable for its actions. Most notable is Chinese strong-arm tactics in business negotiations as well as claiming ownership of Taiwan and the crackdown on liberties in Hong Kong.

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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.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc., and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Securities offered through Triad Advisors, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors.

David Kover on January 5th, 2021

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Welcome 2021!