Markets, Economy

Weekly Kickstart (12/07/2020-12/11/2020)

12/7/20 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.67 percent to 3,699.12. That was another new all-time closing high and it left the benchmark index up 14.50 percent 2020-to-date. Following Monday’s close the S&P 500 officially ended November up 10.75 percent, and 401(k) participants appear to have also fared quite well last month. For example, the average account balance for older (age 55-64) workers with more than 20 years of job tenure climbed 7.2 percent in November, according to the Employee Benefits Research Institute, easily offsetting the 1.6 percent decline in October. Younger (25-34), less-tenured (1-4 years) workers enjoyed a similar 8.4 percent gain last month. The main reason why both groups did not fully match the S&P 500’s November return is because most 401(k) participants are not 100 percent invested in equities, and instead have some money allocated to “less risky” assets, or at least those less correlated with their equity holdings, such as cash and fixed income.

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Although this diversification can sometimes result in a relative underperformance during a period like last month when stocks surged it can also help limit the damage done during drawdowns. The latter can make it easier for investors to remain calm (avoid kneejerk trading decisions) during periods of heightened volatility, e.g. the wild swings seen earlier this year in the market around the March bottom. Such diversification, along with a continued stream of plan contributions, likely explains why the average 401(k) account balance of the younger EBRI worker demographic was able to end November up 24.7 percent year-to-date. The older, more-tenured group was up “only” 13.5 percent 2020-to-date through November due to differences in asset mix and sensitivity to contributions but this gain still outperformed the S&P 500 YTD. Of course even with a seemingly diversified portfolio it can understandably be challenging to remain so resolute during periods of extreme market tumult, and additional assistance for these individuals is available by regularly working with a professional financial advisor. In fact, a recent Charles Schwab study found that retirement plan participants with advised accounts tended to have higher average balances compared to non-advised participants ($473,875 versus $261,240), as well a more diversified asset allocation mix, including a lower concentration of assets in individual securities.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage purchase applications jumped, construction spending exceeded forecasts, corporate layoff announcements moderated, and the rate of joblessness fell to a recovery low (albeit due mainly to a decline in labor force participation). As for the negatives, pending home sales unexpectedly fell, gauges of manufacturing and service-sector activity sent mixed signals, the job creation recovery slowed, and an alarmingly high number of Americans continued to make first-time claims for unemployment benefits. This week the pace of economic data slows down but there are still a few important reports on consumers, productivity, employment, small business, and inflation scheduled to be released.

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What To Watch:

Monday

  • Consumer Credit 3:00 PM ET

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • Productivity and Costs 8:30 AM ET
  • 3-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • JOLTS 10:00 AM ET
  • Wholesale Inventories [Preliminary] 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 10-Yr Note Auction 1:00 PM ET

Thursday

  • CPI 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Quarterly Services Survey 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 30-Yr Bond Auction 1:00 PM ET
  • Treasury Statement 2:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • PPI-Final Demand 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, EBRI, Charles Schwab, FRBSL

Post author: Charles Couch

Disclosures