Weekly Market Commentary December 2, 2020

The Markets

Last week, vaccine optimism immunized investors against signs of economic weakness.

In previous commentaries we’ve written about narrative economics, which holds that popular stories may affect individual and collective economic behavior. Last week, diverse narratives had the potential to influence consumer and investor behavior, but not all did. You may have read that:

Coronavirus anxiety is high. “Figures from recent days suggest infections may have fallen off from record highs in some states. But no one is cheering in the emergency wards. Health workers fear that Thanksgiving gatherings will prove to be super-spreader moments… Meanwhile many college students have just gone home for the year… [A medical professional said], ‘It is like slow-motion horror. We’re just standing there and being run over,’” reported The Economist.

Unemployment claims moved higher. “The number of Americans filing first-time claims for jobless benefits increased further last week, suggesting an explosion in new COVID-19 infections and business restrictions were boosting layoffs and undermining the labor market recovery,” reported Lucia Mutikani of Reuters.

Economic stimulus is needed. “As it stands, tens of millions are already struggling to make rent payments and put food on the table. The $1,200 stimulus checks sent out by the government in the spring have long run dry and 12 million Americans are set to lose unemployment insurance the day after Christmas if Congress does not act,” reported Jacqueline Alemany of The Washington Post.

Vaccines are on the way. “As G20 leaders pledged to ensure the equitable distribution of COVID-19 vaccines, drugs, and tests so that poorer countries are not left out, the United States, United Kingdom, and Germany each announced plans to begin vaccinations in their countries in December…,” reported The Guardian.

Fiscal and monetary policy will reinvigorate the economy. “Surely the market strength reflects the fact that barring [vaccine] rollout disasters, we should have our normal lives back within months…Now add in the widely held assumption that the expected new Treasury secretary Janet Yellen will deliver the additional stimulus she has called for, and the newish Federal Reserve rhetoric that holds interest rates need to stay low…Suddenly it makes perfect sense to think that pent up demand and possible productivity gains created by the crisis could help set off what Goldman Sachs calls the Roaring 20s Redux,” wrote Merryn Somerset Webb for Financial Times.

The optimistic stories – the potential for vaccines to restore ‘normal’ and the possibility of new stimulus measures if Janet Yellen becomes Treasury Secretary – helped drive markets higher last week. Global stock markets rose and were positioned to deliver their best monthly performance ever, reported Camilla Hodgson of Financial Times.
In the United States, the Dow Jones Industrial Average moved above 30,000 before retreating, and the Standard & Poor’s 500 and Nasdaq Composite Indices both finished the week at record highs, reported Ben Levisohn of Barron’s.

Data as of 11/27/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.3% 12.6% 15.4% 11.8% 11.7% 11.9%
Vanguard Total Intl Index (Foreign Stocks) 2.2 7.0 10.7 4.3 7.7 5.3
10-year Treasury Note (Yield Only) 0.9 NA 1.8 2.3 2.2 2.8
Gold (per ounce) -5.1 16.8 22.3 11.2 11.0 2.6
Bloomberg Commodity Index 0.9 -7.5 -4.5 -4.9 -1.6 -6.5

S&P 500, Vanguard Total Intl Index, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

AND THEY’RE OFF! Holiday shoppers may not have been racing into brick-and-mortar retail stores, but that doesn’t mean they weren’t shopping. Consumers have earmarked about $998 for spending on winter holidays, which include Christmas, Hanukkah, and Kwanzaa, according to the National Retail Federation. They plan to spend:

• Slightly less on gifts for family, friends, and coworkers than they did last year
• Slightly more on food and decorations
• Significantly less on non-gift spending (buying that special something for yourself because the price is so attractive)

A lot of that money will be spent online. On Black Friday, U.S. consumers shelled out more than $9 billion online, reported TechCrunch. It was the second biggest day for digital commerce in history. The first was Cyber Monday 2019.

Overall, online holiday sales are expected to break all previous growth records. A report from Adobe estimated 2020 digital sales will be up 20 to 47 percent, year-over-year. That’s a broad range because there is a lot of uncertainty about levels of disposable income and capacity limits for brick-and-mortar stores. The report stated:

“If flu season brings with it a spike in [coronavirus] cases and an increase in store restrictions, a reduced store capacity will drive more people online. E-commerce is still only around one out of every $4 spent on retail. That’s a large bucket of dollars that could move online, leading to potential for big swings this season.”

Whether you are holiday shopping in person or online, or using a smartphone or computer, watching trends may help investors identify new investment opportunities.

Salvation Army Toy Drive

Hello everyone, Waterford is hosting a Christmas toy drive through the Salvation Army! If you wish to donate, we ask that you please bring new, unwrapped toys (age-appropriate for infant through age 12) to our office. We will be accepting donations now through December 11th.

We are located at 3858 North Buffalo Rd., Suite 2, Orchard Park, NY 14127 behind Northwest Bank. Please call 716-580-3906 with any questions. Thank you!

We also want to thank everyone for all the donations made so far! Thank you for always supporting our team and making a difference by helping this great cause.

Weekly Focus – Think About It

“I reached the pinnacle of success in the business world. In others’ eyes, my life is an epitome of success. In the end, wealth is only a fact of life that I am accustomed to. At this moment, lying on the sick bed and recalling my whole life, I realize that all the recognition and the wealth that I took so much pride in, is temporary.

As we grow older, and hence hopefully wiser, we slowly realize that wearing a $300 or $30 watch, they both tell the same time. Whether we carry a $300 or $30 wallet/handbag, the amount of money inside is the same. Whether we drive a $150,000 car or a $30,000 car, the road and distance is the same, and we get to the same destination. Whether we drink a bottle of $300 or $10 wine, the hangover is the same.

Treasure love for your family, love for your spouse, love for your friends. Treat yourself well. Cherish others. You will realize, your true inner happiness does not come from the material things of this world as they are all temporary. Love of family and friends is the only true measure of wealth.”

– Steve Jobs on his death bed