Our weekly market commentary will not be published next week. We would like to take this moment to wish you and your family a safe and joyous holiday season.
Last Week on Wall Street
Stocks climbed higher amid the COVID-19 vaccine rollout and an improving outlook for a fiscal stimulus bill.
The Dow Jones Industrial Average, which has lagged all year, gained 0.44%. The Standard & Poor’s 500 picked up 1.25% while the Nasdaq Composite index surged 3.05%. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.44%.
Fed Outlook on Economy Improves
The Federal Reserve on Wednesday concluded its last meeting of the Federal Open Market Committee for 2020. Fed officials provided more detail for its monthly bond purchase program and reiterated their commitment to a monthly purchase of $120 billion of Treasury and mortgage-back securities until its inflation and employment goals are met.
The Federal Reserve also raised its outlook on the U.S. economy. It revised its September forecast of a 3.7% decline in GDP in 2020 to a 2.4% decline, and increased its 2021 GDP growth forecast from 4.0% to 4.2%. It also expects unemployment at 2020 year-end would fall to 6.7%, substantially lower than its earlier estimate of 7.6%.
THIS WEEK: KEY ECONOMIC DATA
Tuesday: Gross Domestic Product (GDP), Consumer Confidence, Existing Home Sales.
Wednesday: New Home Sales, Consumer Sentiment.
Thursday: Durable Goods Orders, Jobless Claims.
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Cintas Corporation (CTAS), Carmax, Inc. (KMX)
Wednesday: Paychex, Inc. (PAYX)
There’s a natural disconnect between stock prices and the economy as a whole – 2020 has certainly proven that. There is no doubt that wage earners (the U.S. consumer) and small business owners (Main Street) need this fresh round of stimulus to bridge the gap to the vaccinations and the return to open social contact.
The Fed has done the “heavy lifting” to date copiloting this recovery amazingly well. They continue to hold up their end supporting the economic recovery, but they have been clear that monetary policy alone is not sufficient. It took long enough, but we now have the fiscal stimulus relief to help. Better late than never, I suppose. It’s embarrassing that Washington waited this long to step in again and help. We needed this latest round of aid a month ago.
The writing was on the wall. The weekly jobless claims are piling up to a 14-week high and you can expect the December employment report will be a step back from recent positive progress.
$900 billion? It’s a drop in the bucket at this point. The amount should have been twice that. More debt? I know, but the truth is our economic system can handle the extra debt at the moment. Don’t get me wrong, no one wants to add to the deficit. However, we just need to bridge the gap to the spring before the stress of those affected on Main Street snowballs into a larger problem.
Our economy has proven to be resilient and has bounced back from its lows. If we want to sustain our moderate recovery pace, this new relief package can (hopefully) help wage earners and small businesses bridge the gap between the winter surge and inoculation. In comparison to other global economies, the resiliency of the American economy has given us the edge over the pandemic induced damage to economic growth.
The economic calendar will be rather light during the holiday-shortened week but the housing data and weekly jobless claims will be very important gauge on where we're headed over the short term.
For now, it really comes down to stimulus for the U.S. consumers, the small business owners, and Main Street. We can see the light at the end of the tunnel.
Warmest holiday wishes to you and yours,