TLWM Market Updates
2021 began just like 2020 ended with stocks moving higher. There were plenty of headlines to worry about throughout the month as we transitioned to a new administration and COVID-19 cases jumped after the holidays. Despite these risks, investors appeared to remain focused on the positives, as stocks hit all-time highs, before reversing course the last few trading days of the month; the S&P 500 ended January down roughly 1% (YCharts).
TLWM Annual Outlook – 2021
2020 has been filled with remarkable challenges as the global pandemic has upended life in ways that were unimaginable a year ago. Those challenges arrived suddenly with the economy’s abrupt shutdown, subsequent recession, and bear market in stocks during the 1st half of the year. The pandemic’s impact is likely to be felt for years to come as it has changed the way we live, work, and communicate.
As we look toward 2021, we believe that there is light at the end of the tunnel demonstrated by the substantial economic improvement in the 2nd half of this year, along with promising developments in treatments for COVID-19 and the arrival of much anticipated vaccines. Investors appear to believe that the future is bright as the unprecedented drop in stocks at the beginning of this year has reversed and stocks have made an incredible move higher since the lows in March, with the S&P 500 up roughly 13% for the year (through Dec 11th). (YCharts)
We recently upgraded our Leading Economic Index (LEI) indicator on our dashboard to yellow. This indicator signals what economic growth may look like over the next 6 months. LEI has been steadily improving during the 2nd half of this year.
At this point in the year we’re normally making the final preparations for our annual Holiday Party, but like so many other events throughout the pandemic we’ll have to look forward to hopefully resuming that tradition next year. We’ll miss seeing you in person, but hope that each of you, and your families have a safe, healthy, and enjoyable holiday season.
A recent bright spot is the stock market’s strong performance during November as the S&P 500 rallied about 10.75% hitting new all-time highs along the way. (YCharts) This rally has come in a month where we’ve had no shortage of headline news.
We are resetting our yield curve indicator back to green as 3rd quarter GDP growth signals that we are likely out of recession and entering the economic recovery phase of the business cycle (even though National Bureau of Economic Research, NBER, has not officially announced the end date of the recession). The yield curve signal is used as a warning sign of recession and flashes red when the 10YR-3mth spread is below zero (longer-term rates drop below short-term rates). Currently the yield spread is at .80%, as of Nov. 3rd (YCHARTS).
Another month is in the books as stocks moved down in October with the S&P 500 dropping about 2.8% (YCharts). Unless you’ve been living under a rock, avoiding phone calls, and ignoring your mail you know that election day is here. Much has been written about the various potential outcomes, and what each result might mean for the economy and stocks.
In short, we don’t think that any outcome should cause investors to hit the “sell” button. Historically, the US stock market has performed well under both parties and many non-political factors influence the economy and stock market. Potential policy changes could impact specific areas of the economy and may warrant adjustments in portfolios. We have worked with each of you to design an allocation and portfolio that seeks to maximize your chances of reaching your goals and we don’t believe this election is a reason to abandon that plan.
We are upgrading our Market Breadth indicator back to green as market breadth has improved since our last downgrade in September.
September has historically been the worst month of the year for stocks (LPL Financial), and this year was no different as the S&P 500 closed the month down almost 4%. (YCharts) Despite recent weakness the stock market has shown amazing resilience as the S&P 500 is about 4% higher year-to-date, rallying 50% from the lows in March. (YCharts)
COVID-19 has undoubtedly been the biggest factor impacting the economy and stock market this year, and will likely continue to be the most important item to watch as we enter the fourth quarter and move into 2021. Amidst the backdrop of a global pandemic the economy has steadily improved over the last few months. The improvement in economic data, combined with the latest market pull-back, has led us to increase our stock market exposure.
We recently downgraded our Market Breadth indicator to Yellow. While the S&P 500 reached all-time highs in recent weeks, there has been less participation from stocks in the most recent move higher, signaling near-term caution.