This week will mark the last in calendar year 2020, and it will be holiday-shortened yet again. The stock and bond markets in the U.S. will close all day on Friday in observation of New Year’s Day.
Few major economic data releases or earnings reports are slated for the week, giving traders a chance to pause at the end of a historic year.
Even amid a coronavirus pandemic that upended daily life around the world, U.S. equities are poised to close out the year sharply higher. As of market close on Thursday, the S&P 500 was on track to post a 14.6% return in 2020, after 2019’s nearly 29% rise. The Dow (^DJI) was set to post a rise of 5.8% for 2020.
The Nasdaq Composite (^IXIC) was the biggest winner of the three major indices this year and headed toward a 42.7% return for 2020 as of Thursday’s close. The Big Tech and software names that comprised the “stay-at-home” trade led the broader market higher for much of the year, and in the S&P 500 (^GSPC), the information technology sector and Amazon-heavy consumer discretionary sector strongly outperformed. However, broader participation from shares of energy, financial and travel and leisure stocks hardest hit earlier on during the pandemic picked up once news of an effective vaccine emerged last month.
“I’m willing to bet that this time last year nobody (including us) was forecasting that a pandemic would rip through the world in 2020, causing the biggest fall in global GDP since World War II,” Neil Shearing, group chief economist for Capital Economics, said in a recent note. “What’s more, I’m willing to bet that anybody that did forecast such an event, failed also to forecast that stock markets would end the year at a record high.”
Heading into 2021, many equity strategists are exceptionally bullish. With a vaccine rollout under way, the Federal Reserve remaining highly accommodative and more fiscal stimulus likely still on the way, strategists have suggested the S&P 500 may see another year of double-digit returns in 2021. Of a dozen strategists tracked by Yahoo Finance, the median strategist forecasted the S&P 500 would end 2021 at 4,150, for an advance of about 11.5% from the index’s recent record closing high from Dec. 17.
Still, the assumptions used to come to these bullish conclusions lean strongly optimistic, and are underpinned on the ideas that the vaccine distribution will go smoothly, firming rates will not jar markets and policymakers will avoid missteps. And to be sure, virtually no strategists in late 2019 foresaw any event of the scale of the coronavirus pandemic, and any number of as-yet unknown factors could drive volatility next year.
And in the very near-term, Congress’s $900 billion stimulus deal is likely to give a boost to markets. After demanding several big changes last week, President Donald Trump ultimately relented late Sunday, signing the virus relief package that had cleared both chambers of Congress.
The package included a more modest $600 payment that fell short of Trump’s demand to cut $2,000 checks to most Americans. Meanwhile, other items he considered “wasteful and unnecessary” remained intact.
Trump’s initial refusal to sign the bill had economists worried about the lapse of a number of federal unemployment insurance programs that millions of Americans have relied upon over the course of the pandemic. More than 14 million Americans rely on the Pandemic Unemployment Assistance or Pandemic Emergency Unemployment Compensation programs. Benefits in both of these programs expired Saturday, but will be renewed until March in Congress’s virus relief plan.
Despite the threat, equities mostly held up strongly last week, as traders still anticipate a near-term resolution over the stimulus disputes either during the Trump administration or the next.
“I think markets have basically priced in $2 trillion in stimulus, and obviously we’re not getting that with the $900 billion relief bill, but we know that Janet Yellen and Joe Biden are coming into office, and we know that there’s even a possibility that Democrats are going to take control of the Senate, which all points to more stimulus, which all points to down dollar, which all points to more ability for asset prices to increase,” Frances Newton Stacy, Optimal Capital director of strategy, told Yahoo Finance on Thursday. “So markets are quite literally shrugging this off.”
Monday: Dallas Fed Manufacturing Activity Index, December (10.2 expected, 12.0 in November)
Tuesday: S&P CoreLogic Case-Shiller 20-City Composite Home Prince Index month-over-month, October (1.00% expected, 1.27% in September); S&P CoreLogic Case-Shiller 20-City Composite Home Prince Index year-over-year, October (6.95% expected, 6.57% in September)
Wednesday: Wholesales inventories, month-over-month, November preliminary (0.7% expected, 1.1% in October); Advance Goods Trade Balance, November (-$81.5 billion expected, -$80.3 billion in October); MNI Chicago PMI, December (56.5 expected, 58.2 in November); Pending Home Sales month-over-month, November (0.1% expected, -1.1% in October)
Thursday: Initial jobless claims, week ended December 26 (830,000 expected, 803,000 during prior week); Continuing claims, week ended December 19 (5.337 million during prior week)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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