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Commentary provided by John Packs, Senior Investment Officer, AIG Retirement Services

Weekly Market Performance Snapshot (Week ending December 11, 2020 & Year-to-Date)

  • Dow Jones Industrial Average®:  -0.6% / +5.6%
  • S&P 500® Index:  -1.0% / +13.4%
  • NASDAQ Composite® Index:  -0.7% / +38.0%
  • Russell 2000® Index:  +1.0% / +14.6%
  • 10-year U.S. Treasury note yield on December 11, 2020: 0.890%
    - Down 8.2 basis points from 0.972% on December 4, 2020
    - Down 103 basis points from 1.92% on December 31, 2019
  • Best-performing S&P 500 sector this week: Energy, +1.1%
  • Weakest-performing S&P 500 sector this week: Real Estate, -2.9%

    Past performance is not a guarantee of future results.

Equities level off, while IPOs and Facebook show two sides of tech

The S&P 500, NASDAQ Composite, and Russell 2000 all set new highs early in the week, before equities leveled off. Only the small cap Russell 2000 managed a gain for the week. Markets continued to wait for an economic relief package from Washington, while keeping an eye on vaccine developments. Investors also welcomed two big initial public offerings (IPOs).

  • Distribution of the Pfizer/BioNTech vaccine began on Tuesday in the UK, with few problems reported. Canada approved the vaccine on Wednesday. On Thursday, an FDA advisory panel recommended granting emergency use authorization to the Pfizer/BioNTech vaccine. As of market close on Friday, the FDA had not finalized approval, but was expected to do so imminently. Moderna’s vaccine will be considered on December 17. Much of the market rise in recent weeks has been predicated on vaccine approvals leading to a return to economic normalcy in 2021.
  • Airbnb and DoorDash went public in highly anticipated IPOs. While Airbnb has suffered from a broad decline in travel, it has benefited from vacationers favoring home rentals over hotels. DoorDash has seen rising revenue as more people have relied on the service for restaurant delivery. Both IPOs priced higher than expectations and then surged on their first day of trading.
  • According to data provider Dealogic1, more than $140 billion has been raised in IPOs this year, surpassing the previous record set in 1999 at the height of the dot-com boom. The hunger for IPOs may reflect some froth in markets, as investors make bigger bets on companies with high growth prospects but inconsistent or nonexistent profits.

    1“DoorDash Brings Big Gains In Debut Of Shares,” The Wall Street Journal, Dec. 10, 2020

  • The federal government unfriended Facebook, as the Federal Trade Commission filed an anti-trust lawsuit against the company. The suit seeks to roll back Facebook’s acquisitions of Instagram and WhatsApp, which the government now says were examples of the company’s anti-competitive behavior. Forty-six states also filed suit against Facebook. The company’s stock fell modestly on the news.
  • The Facebook litigation may take years to play out. More immediately, it offers further evidence of the regulatory challenges facing big tech companies as policymakers in both parties increase scrutiny of the companies’ practices in areas ranging from acquisitions to speech regulation to data privacy. The U.S. Department of Justice filed an antitrust lawsuit against Google in October.

Jobless claims up as markets wait for Congress to deliver fiscal relief

Weekly new unemployment claims jumped to 853,000 from the previous week’s 716,000. The report didn’t generate much market reaction. It’s clear that the economy is sputtering as anti-virus measures reduce economic activity. Of greater interest to investors are the ongoing talks over government funding and fiscal relief.

  • Congress passed a one-week extension to the Continuing Resolution funding the federal government. Both parties aim to have a longer-term funding agreement and a stimulus agreement completed before they head home for the holiday recess, though they still disagree over details. If additional relief measures don’t materialize before the recess, markets may react unfavorably.
  • The U.S. isn’t alone in trying to put a safety net under the economy. On Tuesday, the Japanese government approved additional fiscal stimulus measures totaling around $700 billion. On Thursday, the European Union appeared to overcome the last hurdle to spending roughly $900 billion on fiscal relief. Separately, the European Central Bank announced new lending to banks and increased the amount of its emergency bond purchases, extending the duration of the program into 2022. While still fighting the virus, Europe also faces potential economic disruptions if EU and UK negotiators fail to reach a post-Brexit trade deal.
  • The Federal Reserve meets December 15-16. Investors will be looking for clues to future monetary policy and how the Federal Reserve plans to continue supporting the economy.

Final thoughts for investors

Market action for the rest of December is likely to be dominated by vaccine developments and the status of economic relief talks. Some investors may also look to harvest gains from the year’s surprisingly positive equity market performance. Take some time now to speak with a financial professional about your goals for 2021 and beyond, and about any adjustments you may want to make to ensure your asset allocation is aligned with your investment objectives and risk profile.

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