Year-End Market and Economic Update 2020

Maura Schauss |

By The CFP® Team at Washington Wealth Advisors

As an investor, it’s the time of year to reflect on 2020 and plan for 2021. With that in mind, we provide our year-end market update so you can embark into 2021 informed and ready to achieve your investment goals.

Economy

The economy as a whole is emerging out of the recession caused by the pandemic. Although extensive, the recession itself was relatively short-lived. High unemployment numbers are still limiting household spending, and the end of the pandemic is still out of sight. As a result, the recovery will most likely be a gradual one.[1]

With its multi-trillion-dollar stimulus package supporting consumers and businesses throughout the economy, the government has attempted to mitigate the worst effects of the recession. That has come at a cost, as the economy now has the highest debt to GDP and deficit to GDP since World War II.[2] A second stimulus package is expected to arrive since most portions of the first have expired. However, congressional negotiations have failed to achieve any meaningful resolution, leaving many investors wondering when a second stimulus relief package will arrive.

Labor Market

Unemployment has rebounded from the 14.7% unemployment rate seen in April, but many of the hardest-hit industries, such as leisure and hospitality, will still take significantly more time to recover.[3]

245,000 jobs were gained in the month of November. Economists predicted job growth of 440,000, so this could be a potential warning sign for things to come over the winter. This is also the fifth straight month with declining job gains. Economists will continue to keep their eye on the labor market, with fears of additional economic pain in the coming months.[4]

Stock Market

Despite being down 34% in the bear market experienced in February and March, the S&P 500 was up 12.1% on the year coming into the month of December. Investors can attest that it has certainly been a roller-coaster ride to get here and hope traditional consumer spending will continue throughout the holidays. Consumer confidence fell in November, and spending may be lower due to new rounds of lockdowns attributed to the COVID-19 pandemic.[5]

The outstanding performance of the markets in November has shown us that despite all of the challenges with COVID-19 and the economy, investors still believe markets will get through the winter intact. A lot can and will happen between now and spring, so that will remain to be seen.[6]

Santa Claus Rally?

Since 1945, the S&P 500 has increased in price 73% of the time throughout December. However, the gains achieved in the month of November may put a damper on any Santa Claus rallies this year. When the S&P 500 has been up by more than 5% in November, it has typically achieved lower-than-expected returns in December.[7]

Federal Reserve Policy & Interest Rates

Buying up massive amounts of treasuries has allowed the Fed to pursue levels of fiscal stimulus not seen in quite some time. Earlier this year, the Fed cut the federal funds rate to a range of 0-.25%.[8]  The Fed is stating that they plan to keep rates in the current range through 2022.

At its November meeting, the Federal Reserve kept interest rates unchanged and called on Congress for more stimulus. Investors are keeping their eye on the upcoming December meeting, anticipating more programs to aid the economy if a stimulus bill is not passed in Congress, which has yet to occur.[9]

Your Financial Plan

Along with reflecting on the markets and economy as a whole, now is the time to think about your financial plan as well. Did you make meaningful progress toward achieving your financial goals in 2020? This is a great time to evaluate your plan and make any necessary adjustments for 2021.

If you have questions, we’re here for you. At Washington Wealth Advisors, we’ll work together so you can achieve financial peace of mind. Call 703.584.2700, email clientservices@washingtonwealthadv.com or schedule some time with us and get started on the path to accomplishing your financial goals today.

 

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ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Washington Wealth account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Washington Wealth Advisors accounts; and, (3) a description of each comparative benchmark/index is available upon request.

 

[1]https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/economic-and-market-update/

[2]https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/economic-and-market-update

[3]https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/economic-and-market-update/

[4] https://www.nbcnews.com/business/economy/u-s-economy-gains-just-245-000-jobs-final-report-n1249983

[5] https://www.nasdaq.com/articles/december-2020-stock-market-outlook-2020-12-02

[6]https://www.cnbc.com/2020/11/30/huge-november-gains-may-make-the-usual-year-end-santa-claus-rally-less-likely.html

[7]https://www.cnbc.com/2020/11/30/huge-november-gains-may-make-the-usual-year-end-santa-claus-rally-less-likely.html

[8]https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/economic-and-market-update/

[9] https://www.nasdaq.com/articles/december-2020-stock-market-outlook-2020-12-02