Monthly Market Wrap-up: December 2020
Welcome back to the Monthly Market Wrap-up from YCharts, where we break down the most important market trends for advisors and their clients every month. As always, feel free to download and share any visuals with clients, colleagues, or on your social media!
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To kick things off, take a look at this chart: as the stock market ended 2020 at a new high, investors’ borrowing against securities also set a new high of $722 billion—so which is the chicken, and which is the egg? Margin debt was actually on the decline before Covid-19 affected US equities, but this dramatic rise in leverage amid the recovery has powder keg-like potential.
Election season continues on as the Georgia senate run-offs could determine the path of congressional policy for the next four years. As it relates to Covid-19, we are (knock on wood) beginning to see the light at the end of the tunnel as the first vaccines have been administered, and AstraZeneca’s vaccine has been approved for use in the UK. Heading into 2021, we’ll focus on these key developments from December:
• Off the YCharts! Just Trying to Break Even
• Major Index Returns: Emerging into 2021
• Sector Movement: 3 sectors up 25% in 2020
• Hot Stocks of the Month: Musk and the Mouse
• Laggards & Losers: A $DISH served cold
• Economic Data: Jobs data, the little engine that could
Off the YCharts! Just Trying to Break Even
Investing in 2021 poses several changes, but a major one for investors will be where to find yield. With the 10 year Treasury finishing 2020 just under 1%, and breakeven inflation rising to nearly double that figure, risk free asset returns would be negative 1% in real terms. Yield from riskier assets is also being pinched, with high yield debt spreads (the spread between high yield bonds and the 10Y Treasury) pressing lower since the March spike, now below 4%.
Major Index Returns
Even after double digit gains in November, equities pulled off another positive month in December (and yes, Santa Claus gifted us a rally). The S&P 500 added 3.8% in the final month of the year, setting a new all-time-high and cementing an 18% total return for 2020—a remarkable feat considering the global pandemic. Yet, emerging markets doubled US stocks’ pace in December, and the asset class is carrying steam into 2021. The global aggregate bond index and high yield corporate bonds climbed 1.9% and 1.3%, respectively.
Every sector added value in December amid widespread positive sentiment from positive vaccine news and a fresh round of stimulus from Congress. Energy cooled off significantly after rallying in the early part of the month, leaving the door open for the 6.3% climb by Financials to lead all sectors in December. For the entirety of 2020, three sectors posted total returns above 25%: technology added 43.6%, consumer discretionary 29.6%, and communication services gained 26.9%.
Hot Stocks of the Month: Ten Top Performers
The composition of December’s top ten stocks is evidence of a broad market rally. Instead of another weird outdoor car rally, Tesla (TSLA) celebrated its inclusion in the S&P 500 by increasing its share price 740% in the 2020 calendar year. For The Walt Disney Company (DIS), a 22.4% gain in December and only slightly higher 25.3% annual gain are bittersweet reminders of both the March drawdown’s severity, and the recovery’s strength ever since. Strong December gains for Western Digital (WDC) and Ralph Lauren (RL) unfortunately weren’t enough to recover from the 50% drawdowns they each suffered earlier in 2020.
Laggards & Losers: Ten Worst Performers
FedEx (FDX)—a high-flyer in 2020 thanks to our increasingly e-commerce world—gave up some of its annual gains in December but still ended the year up 71.7%. DISH Network (DISH) was on pace to finish the year level before announcing a $2 billion convertible note offering to finance ongoing 5G network development for the company’s Boost Mobile business. Other December losers that finished 2020 lower include Entergy Corp (ETR), Perrigo (PRGO), and Cabot Oil & Gas (COG).
Financial Market & Advisor News
4 ETFs Predictions for 2021 (ThinkAdvisor)
The secret to closing prospects (InvestmentNews)
Five ideas for fixed-income investors in 2021 (Wealth Professional)
Why You Should Call Your Clients the Week After Christmas (ThinkAdvisor)
Jobs data is like The Little Engine That Could, slowly but surely fighting back to normal since the March/April unemployment spike. November’s unemployment rate lowered to 6.7%, down from a peak of 14.7% in April but higher than the 3.5% figure a year ago. A more positive note for jobs data: initial jobless claims fell to 787k in the last full week of 2020, reversing a small spike seen in early December.
Production and Sales
US Retail and Food Services Sales fell 1.1% in November, only the second negative month-over-month change for the indicator since April, and durable goods orders were up a modest 0.9%. The mixed signals might have resulted from continued regional shutdowns amid vaccine rollout.
US New Single Family Houses Sold dropped sharply in the latest November print, down 11% month-over-month. The US house price index, however, jumped 1.5% in October, its fifth straight month of 1% growth or better.
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