The Week on Wall Street
Stocks surged last week, ignited by another COVID-19 vaccine announcement, encouraging economic data, and the easing of political uncertainty.
The Dow Jones Industrial Average rose 2.21%, while the Standard & Poor’s 500 added 2.27%. The Nasdaq Composite index, which has led all year, gained 2.96%. The MSCI EAFE index, which tracks developed overseas stock markets, climbed 1.54%.
Dow Breaks 30,000
For the third consecutive week, markets opened on Monday to yet another announcement of a potential COVID-19 vaccine.
Stock prices found additional support on news that President-elect Biden would be nominating Janet Yellen, the former Chair of the Federal Reserve, to be Secretary of the Treasury. Investors reacted well to the choice, encouraged by her previously voiced support for greater fiscal stimulus and relieved that a candidate less antagonistic to the industry was selected.
Positive momentum continued into the following day, driving the Dow Jones Industrial Average, S&P 500 index, and the Russell 2000 to record high levels, with the Dow closing above the 30,000 milestone.
Stocks eased off their highs in pre-Thanksgiving trading, though they recovered some of those losses on Friday, as the S&P 500 and NASDAQ Composite closed with fresh record highs.
A Microcosm of the Economy
The economic outlook has been difficult to figure out due to conflicting signals. One day it’s a historic jump in economic growth; another day it’s a record high in new COVID-19 infections. Last week was a good illustration of this. Reports of healthy consumer spending, a solid rise in durable goods orders, and sales of new homes remaining near almost-14-year highs were balanced by a jump in new jobless claims, a decline in household income, and new state and local COVID-related restrictions.
Last week investors chose to see the glass half full and look past the near-term challenges the economy faces.
THIS WEEK: KEY ECONOMIC DATA
Tuesday: Institute for Supply Management (ISM) Manufacturing Index.
Wednesday: Automated Data Processing (ADP) Employment Report.
Thursday: Jobless Claims, Institute for Supply Management (ISM) Services Index.
Friday: Employment Situation, Factory Orders.
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Monday: Zoom Video Communications (ZM)
Tuesday: Salesforce.com (CRM)
Wednesday: Splunk (SPLK), Snowflake, Inc. (SNOW), Crowdstrike Holdings (CRWD)
Thursday: Marvell Technologies (MRVL), Dollar General (DG), Docusign (DOCU)
Much of the economic heavy lifting has been taken up by the U.S. consumer, in coordination with the Fed stimulus initiative. Wall Street has already put the coronavirus in its rearview mirror and is looking toward continued growth in 2021.
Although we don’t have a Wall Street problem at the moment, we do have a Main Street problem. As 2020 has proven, there’s a natural disconnect between stock prices and the economy as a whole. Despite what anyone says, the U.S. consumer and small business owner on Main Street need help bridging the gap to the vaccine.
Meanwhile, it is important to stay focused on one’s long-term goals. It is easy to become sidetracked by the news du jour. Sir John Templeton said “There is a marked difference between a trader and an investor. The former tries to read "outlooks and trends" for quick profit, the latter seeks value for long-term wealth creation. Ours is not a quick fix, but a lasting investment of capital.”
We are fond of quoting another legendary economist and investor, Mr. Benjamin Graham, who left us a morsel of wisdom in his words: "the essence of investment management is the management of risks, not the management of returns."
While this has been a roller coaster of a year, those who were diversified and who maintained their resolve have done well.