A tremendous final quarter for markets heralded in a new year filled with the promise of multiple COVID-19 vaccines, changes in federal leadership, added fiscal stimulus, and an on-going economic recovery. Global asset classes increased the pace of their advance with the S&P 500 Index finishing the year up +18.3% (ETF proxy SPY*), and the Barclays Aggregate Bond Index higher by +7.5% (AGG).
Even in hindsight, it may seem paradoxical that both indices performed so spectacularly well during this time of COVID. However, behind both moves was trillions in federal monetary and fiscal stimulus that drove stocks higher and bond yields lower. While growing concentrations in large-cap technology stocks served to multiply the early move in stocks, as the Biden-Harris win became evident and various vaccines worked their way through the fast-tracked approval process in the fall, that move broadened significantly in the fourth quarter for a late-year boost among small-cap, value, and global cyclical stocks. Indeed, the November move was the largest monthly gain since 1987 (CNBC, “World stocks outperform the US in bumper November,” 12.01.20) and that momentum has carried through into 2021.
During the fourth quarter, the S&P 500 Index advanced +12.1% (SPY) while overseas stocks soared higher still, with Emerging Market stocks up +18.9% (IEMG). US Aggregate Bonds also rose by +0.7% (AGG), only to be slightly outpaced by Global Fixed Income, up +1.1% (BNDX) on modest US Dollar weakness. Finally, both Global Real Estate and Commodities rose higher by +13.9% (RWO) and +12.6% (DBC), respectively, for another “everything higher” quarter.
While we may see positive performances again in the year ahead given the Federal Reserve on record as being “on pause” and fresh stimulus on the way including a recently approved $900B bill with an additional $1.9T proposed (FT, “Biden to push $1.9T stimulus…,” 01.14.21), economic underpinnings remain mixed and COVID infection rates are dire even as stock and bond market valuations alike have reached rarified air.
At some point this may support a bumpy ride ahead until we see firmer evidence of improved vaccine distribution, a smooth transfer of presidential power, and greater signs of economic stability, particularly in jobs. Meanwhile, the disconnect between the strong inter-market up-trends versus the mixed economy and heated valuations have our portfolios just slightly below normal levels of long-term stock holdings.
* Not Individual Investment Advice; Dividend-adjusted proxy ETP data from Commodity Systems, Inc. & Allocations as of December 31, 2020 may not apply to all clients; ECA assumes no duty to update any information in this presentation for subsequent changes of any kind.
OUR TEAM
Jeff Pietsch CFA, Managing Director
Wall Street versus Reality
Even in hindsight, it may seem paradoxical that both indices performed so spectacularly well during this time of COVID. However, behind both moves was trillions in federal monetary and fiscal stimulus that drove stocks higher and bond yields lower. While growing concentrations in large-cap technology stocks served to multiply the early move in stocks, as the Biden-Harris win became evident and various vaccines worked their way through the fast-tracked approval process in the fall, that move broadened significantly in the fourth quarter for a late-year boost among small-cap, value, and global cyclical stocks. Indeed, the November move was the largest monthly gain since 1987 (CNBC, “World stocks outperform the US in bumper November,” 12.01.20) and that momentum has carried through into 2021.
During the fourth quarter, the S&P 500 Index advanced +12.1% (SPY) while overseas stocks soared higher still, with Emerging Market stocks up +18.9% (IEMG). US Aggregate Bonds also rose by +0.7% (AGG), only to be slightly outpaced by Global Fixed Income, up +1.1% (BNDX) on modest US Dollar weakness. Finally, both Global Real Estate and Commodities rose higher by +13.9% (RWO) and +12.6% (DBC), respectively, for another “everything higher” quarter.
While we may see positive performances again in the year ahead given the Federal Reserve on record as being “on pause” and fresh stimulus on the way including a recently approved $900B bill with an additional $1.9T proposed (FT, “Biden to push $1.9T stimulus…,” 01.14.21), economic underpinnings remain mixed and COVID infection rates are dire even as stock and bond market valuations alike have reached rarified air.
At some point this may support a bumpy ride ahead until we see firmer evidence of improved vaccine distribution, a smooth transfer of presidential power, and greater signs of economic stability, particularly in jobs. Meanwhile, the disconnect between the strong inter-market up-trends versus the mixed economy and heated valuations have our portfolios just slightly below normal levels of long-term stock holdings.
* Not Individual Investment Advice; Dividend-adjusted proxy ETP data from Commodity Systems, Inc. & Allocations as of December 31, 2020 may not apply to all clients; ECA assumes no duty to update any information in this presentation for subsequent changes of any kind.
Jeff Pietsch, CFA
Managing Director
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