Markets, Economy

Weekly Kickstart (01/04/2021-01/08/2021)

1/4/21 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.43 percent to 3,756.07. That was yet another new all-time closing high and it allowed the benchmark index to end 2020 with a gain of 16.26 percent. That is more than double the average 7.67 percent annual increase seen since 1928 and a significant reversal from March 23rd when the S&P 500 was down 30.75 percent (closing basis). Moreover, there have been some violent intraday swings in stock prices during the past twelve months, especially in the first half of 2020 when pandemic-related uncertainty was at its peak, but the S&P 500 still managed to rise in value 57 percent of the time last year (proportion of trading days with a positive return), and the broad index hit a record high 33 times (nearly triple the long-run average). Looking ahead, January has historically been one of the stronger months for equity returns, and since 1928 the S&P 500 has risen 63.04 percent of the time during the first month of the year, with an average gain of 1.25 percent.

y783y54785

For some additional perspective, if we look at what happened in January following a December gain of at least 3.71 percent, like we just experienced, the S&P 500 continued higher 85.71 percent of the time during the past 90+ years and ended the first month of the new year up 1.98 percent on average. More generally, when the S&P 500 experienced an above average annual return the index continued higher in the following January 64.71 percent of the time for an average gain of 1.43 percent. Even better, the S&P 500 added to the previous year’s above-average gains 70.59 percent of the time during the first quarter of the new year and ended the 3-month period with an average increase of 2.14 percent. Clearly strength often begets strength in the stock market, but even encouraging historical comparisons do not necessarily mean it will be smooth sailing for investors throughout the new year. Moreover, the uncertainty still surrounding this week’s Georgia runoff election, the nationwide COVID vaccine rollout, and a handful of other near-term issues all have the potential to offset any favorable seasonality. Regular investors uncomfortable with another uptick in volatility should therefore use 2020’s strong market performance as an opportunity to review their positioning and make sure it is properly aligned with your risk tolerance, nearness to retirement, and other unique variables. These periodic reviews can help identify potential portfolio imbalances ahead of time rather than waiting until the market has already moved against you and your options feel much more limited. As always, we are here to help with any questions you may have.

543yy34545

To recap a few of the things we learned about the economy last (holiday-shortened) week, the only noteworthy positive was that home values rose at a faster rate. As for the negatives, pending home sales fell, a gauge of business activity in the southern region of the country softened, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data picks up with several important reports on manufacturing, construction spending, the U.S. service sector, small business, consumers, and employment scheduled to be released. That includes the potentially market-moving December job report from the U.S. Labor Department due out on Friday, the release of the minutes from the most recent Federal Open Market Committee (FOMC) meeting on Wednesday, and a handful of speeches from Federal Reserve officials scattered throughout the week.

45y3y35445

What To Watch:

Monday

  • PMI Manufacturing Final 9:45 AM ET
  • Construction Spending 10:00 AM ET
  • Raphael Bostic Speaks 10:00 AM ET
  • Charles Evans Speaks 10:00 AM ET
  • Loretta Mester Speaks 12:15 PM ET
  • Loretta Mester Speaks 6:00 PM ET

Tuesday

  • ISM Manufacturing Index 10:00 AM ET
  • Charles Evans Speaks 3:45 PM ET
  • John Williams Speaks 3:45 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • ADP Employment Report 8:15 AM ET
  • PMI Composite Final 9:45 AM ET
  • Factory Orders 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • FOMC Minutes 2:00 PM ET

Thursday

  • Challenger Job-Cut Report 7:30 AM ET
  • International Trade in Goods and Services 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Patrick Harker Speaks 9:00 AM ET
  • ISM Services Index 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 3-Yr Note Announcement 11:00 AM ET
  • 10-Yr Note Announcement 11:00 AM ET
  • 30-Yr Bond Announcement 11:00 AM ET
  • James Bullard Speaks 12:00 PM ET
  • Charles Evans Speaks 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • Employment Situation 8:30 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
  • Consumer Credit 3:00 PM ET
 

 

Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures