Stocks were in a festive mood this week as we approach the year-end. While COVID trends worsened, the stock market rose as investors continue to look beyond the crisis to the impending recovery. Investors have a lot to be thankful for as we close out 2020. Despite a global pandemic, U.S. stocks are in positive territory for the year. With that said, we cannot resist getting in the holiday spirit and putting together a little wish list.
Our holiday wish list:
- The gift that keeps on giving; a COVID vaccine. A swift and complete vaccine rollout will save lives, slow the spread, and help us return to a more normal economy. You get a vaccine, and you get a vaccine!
- Let’s make a deal; fiscal stimulus. While we await the benefits of a vaccine, Congress needs to pass a new stimulus bill to avoid leaving tens of millions without unemployment benefits after Christmas.
- Hard cold cash; a present from the Fed. Low interest rates and asset purchases by the Federal Reserve are keeping money flowing in the economy despite the challenging economic backdrop.
It is a shortlist this year, but these three gifts are what is needed most to help drive stock performance in the coming months. While mega-cap growth stocks (Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Facebook (FB), etc.) have sustained the market thus far this year, there is still plenty of opportunity in small-cap and value stocks, in our opinion. A well-diversified portfolio that is not overly reliant on mega-cap stocks, along with intelligent rebalancing, can capitalize on these opportunities as they arise.
Headlines This Week
Department of Labor
- As COVID-19 cases continue to rise, it is not surprising to see initial jobless claims increase.
- Around 885,000 people filed new unemployment claims last week.
- As of November, about 20.6 million Americans are receiving some form of unemployment benefits.
- Many will lose these benefits after next week if Congress does not agree on the terms of the next stimulus bill. There are going to be some late nights in the Capital.
- Electric vehicle maker Tesla will be added to the S&P 500 index on Monday.
- It is estimated that around 130 million shares of Tesla will need to be purchased.
- This year, Tesla’s stock is up over 698%, with a market value above $620 billion as of Friday.
- The market value of Ford (F) and General Motors (GM) combined is less than $100 billion.
Freedom of the Printing Press
- On Wednesday, Fed’s Chair Jerome Powel reiterated the Fed’s stance on supporting the economy.
- Mr. Powel said that it could take a long time before we will see 2% inflation.
- Powel does not think stocks are overbought, given the low interest rate environment.
- The Chairman has indicated that at the current rate, the Federal Reserve will buy just under a trillion dollars of Treasuries per year for the next 3 years.
The Week Ahead
Next week is Christmas and Boxing Day, and investors will be focused on a stimulus deal in the U.S. and Brexit developments overseas.
Yawn for the Yuan!
People’s Bank of China has a rate decision on Monday.
- No major move in rates is anticipated as the Chinese Central Bank is expected to keep the benchmark Loan Prime Rate at 3.85% for the eighth straight month.
- However, policy speculators are starting to explore the chances of a neutral or even tightening stance from China due to upbeat economic data points.
While these are Q3 revisions, they may catch a headline or two as U.S., United Kingdom, and Canada are scheduled to release final revisions.
Durable goods orders, new home sales, existing home sales, initial and continuing weekly jobless claims, Personal Consumption Expenditures (PCE) Index, Redbook Index, and the University of Michigan Consumer Sentiment Index will be released during the short week.
The market will be closed in observance on Friday and end the trading day early on Thursday. Merry Christmas!
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