With two weeks to go until year-end, we reflect on the second half of this unprecedented year.
Craig Cohen, FX, Commodities and Rates Strategist
Maddie Mauzy, Global Market Strategist
Our Top Market Takeaways for December 18, 2020.
Markets in a minute
Finishing strong
The S&P 500 and the NASDAQ both closed at new record highs on Thursday as the vaccine rollout, monetary policy support and stimulus buzz gave investors reason to feel optimistic. The dollar fell to its lowest level since April 2018, WTI crude ended at its highest level since February, and 10-year Treasury yields inched back up to 92 basis points (bps).
After the market closed on Thursday, an FDA advisory panel recommended that Moderna’s vaccine be cleared for broad use in the United States. That paves the way for the FDA to authorize its emergency use, as it did with the Pfizer/BioNTech vaccine last week. This is certainly welcome news, but we’d stress that it also occurs as new COVID-19 cases and deaths continue to hit new records in the United States. These worsening trends and associated activity restrictions are weighing on some economic indicators heading into year-end—for instance, this week saw another 885,000 initial jobless claims (versus expectations of 800,000). But even as uncertainty persists, the broader economic recovery remains intact (albeit staggered and uneven), and we’re starting to see the light at the end of the tunnel. On the bright side, the housing market continues to boom, with November housing starts up 12.8% versus last year.
On the stimulus front, D.C. lawmakers seemed just about ready to set aside (at least some of) their differences in the holiday spirit and pass a ~$900 billion relief bill, but they hit yet another snag, this time over the Fed’s pandemic-era lending facilities. Republicans would like to draw back the Fed’s ability to set up lending programs to “backstop” different areas of the U.S. financial system (a power granted by the CARES Act in the spring). Meanwhile, Democrats say the Fed may need these facilities just in case the government fails to agree to additional stimulus in 2021.
Even with two weeks to go until year-end, 2020 continues to keep investors on their toes. This week’s Top Market Takeaways is our last of the year, and we’re bringing it to a close by finishing our roundup of some of the most notable market events over the past 12 months. In case you need a recap of what happened in the first half of the year, check out last week’s note before reading on below.
Spotlight
2020’s most notable market events, Part II
Picking up where we left off, let’s start with…
July
The dollar had its worst month in 10 years. A few things spurred the selloff. First, continued accommodation from central banks and a fledging recovery pushed real yields (the difference between nominal, or current, yields and inflation) to new all-time lows—to below -100 bps! For the first time in years, that meant U.S. dollar deposits had a real yield that was on par with those in euros and lower than that of Swiss francs and Japanese yen. Second, back in July, Europe seemed to be (more) successful in managing and containing the virus, suggesting that it could enjoy a quicker pace of recovery relative to the United States. The European Union also had recently reached a deal on the €750 billion recovery fund, mitigating the risk of a Eurozone breakup (and the reintroduction of multiple currencies). Since then, the dollar has continued to decline—this week, the U.S. Dollar Index dropped to 89.8, its lowest level since April 2018. In our view, the 2020 decline in the greenback has set the precedent for a weaker dollar in the year ahead.
This chart highlights the change in the U.S. Dollar Index (DXY) from 2010 to December 17, 2020. The green line shows the index level, and the purple bars show how much the index level changed each month. The orange bar represents the drawdown in July, which was the worst month for the U.S. dollar in 10 years.
August
The S&P 500 reclaimed its prior all-time highs from February, logging the fastest “round trip” ever. It took only 181 days to travel from the February peak to the -34% trough in March, and back to its prior peak again—a record. What a ride! Since recovering to its pre-COVID-19 peak on August 18 to today, the S&P 500 has hit 17 new all-time highs (bringing its year-to-date new record tally to 31—above the average 19 since 1990).
September
September closed out a record quarter for deal making and IPOs, both in the United States and globally. Global venture capital (VC) funding in North America, Asia and Europe hit an all-time high of $71.9 billion in a single quarter. It was also the second-strongest quarter ever for VC investments in U.S.-based companies, with $36.5 billion in funding (+22% year-over-year and +30% from Q2). Finally, 81 initial public offerings raised $28.5 billion in the third quarter, the busiest period for listings since 2000.
October
As the political chaos of fall 2020 continued to build, the S&P 500 logged its worst “pre-election” week on record. The last week of October was also the index’s worst week since its March lows due to the collapsing outlook for fiscal stimulus, election jitters and rising COVID-19 cases.
This bar chart shows the price change of the S&P 500 by sector from October 23 through October 28. All 11 sectors finished lower, as the index suffered its worst week since March.
November
It was the best month ever for a number of stock market indices around the world. The Dow Industrials broke through 30,000 for the first time ever, and Japan’s Nikkei hit its highest level since 1991. It was the best month ever for the MSCI ACWI (+12.2%), Russell 2000 (+18.3%) and the Stoxx Europe 600 (+13.7%). And while China’s onshore CSI 300 “only” gained +5.6%, it still managed to make new highs. The S&P 500 financials (+16.8%) and industrials (+15.6%) sectors had their best months since 2009, and materials (+12.2%) had its best month ever. On the flipside, it was the worst month for global growth stocks relative to global value stocks since 2008. Growth underperformed value by -3.8% as the market recovery broadened out in the wake of U.S. election clarity, vaccine developments and the continuation of economic data surprises.
This chart shows the monthly return of the MSCI World Growth Index versus the MSCI World Value Index from December 31, 1999 to November 30, 2020. When the gray bars cross the x-axis into negative territory, growth underperforms value. The Growth Index underperformed the Value Index by -3.8% in November, making it the worst month for global growth stocks relative to global value stocks since 2008.
Also, more votes were cast in the 2020 presidential election than in any other U.S. election in history. President-elect Biden won the largest share of the popular vote against an incumbent since 1932 and received more than 81 million votes, the most votes ever cast for a candidate in a U.S. presidential election (and President Trump received the second-most votes ever cast for a candidate and the most for any sitting president).
December
The total market capitalization of the “global equity market,” which encompasses the equity markets of nearly 90 countries, topped $100 trillion for the first time ever. After a tumultuous year, this milestone is a testament to a global economy that continues to heal, thanks in large part to the monetary and fiscal support deployed by central banks and governments around the world at the height of the crisis.
So with that, we conclude the “unprecedented” year that has been 2020. As we look into the year ahead, the global healing process is underway, thanks to the “unprecedented” actions of central banks, lawmakers, businesses, scientists and, most importantly, frontline healthcare and essential workers. We’re grateful for those efforts, and for having the opportunity to share our insights with you.
From the entire Top Market Takeaways team, we wish you and yours happy holidays and a healthy new year.
All market and economic data as of December 2020 and sourced from Bloomberg and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
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