Annual Market Review
Annual Market Review
Annual Market Review 2020
ANNUAL MARKET REVIEW 2020
Over the past 12 months, we have endured a global pandemic, resulting in numerous deaths and hospitalizations, mass layoffs, a sinking economy, and a contentious presidential election. Our lives and lifestyles changed, where working and learning from home became the “new normal,” and in-person communication was replaced by virtual meetings. In short, 2020 was a very memorable year that tested our resolve, patience, and courage.
The year began with news of a SARS-like virus spreading in China. Little did we know the impact this contagion would impart on our health, politics, and economy. Late in January, the very first known case of COVID-19 in the United States involved a Washington state victim who had traveled from the city of Wuhan, China. By February, the growing number of reported cases of the virus prompted travel restrictions, stay-at-home orders, and shutting down of businesses both domestically and around the world. Aside from concern caused by the virus, we were consumed by the impeachment in February of President Trump, who was eventually acquitted by the Senate.
In March, the World Health Organization declared a global pandemic as the spread of the virus reached more than 100 countries, with more than 100,000 reported cases. By mid-March, President Trump declared a state of national emergency. World economies and stock markets were rocked by the spread of the COVID-19 virus, leading to major market sell-offs, plunging stocks well below their 2019 values. The U.S. first-quarter gross domestic product decelerated at a rate of -5%, only to be outdone by a second-quarter deceleration of -31.4%. Fear became the motivating factor in our lives — fear of contracting the virus, fear of losing a loved one to the virus, fear of job loss, fear of economic failure, and fear of losing our money.
In response to the economic turmoil caused by the pandemic, several pieces of legislation were passed, including the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First Coronavirus Response Act, and the massive COVID-19 rescue package, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which included the Paycheck Protection Program and distribution of stimulus checks to qualifying individuals. In May, focus shifted to the death of George Floyd, which sparked protests and confrontations across the country.
The summer months saw a slight lull in the number of reported virus cases. Economies began to marginally recover, some businesses began to reopen, and travel restrictions were relaxed. However, as the availability of testing for the virus increased, so did the number of reported cases. Following the Democratic and Republican national conventions, the campaign for the presidential election captured the focus of most Americans for the rest of the year, although COVID-19 seemed to cast a shadow over almost every aspect of our lives.
The November presidential election resulted in the defeat of President Donald Trump by former Vice President Joe Biden, with the post-election period dominated by attempts to challenge the results through federal courts and state legislatures. Nevertheless, some positive news came at the end of the year with the development and initial dissemination of COVID-19 vaccines and additional legislation that provided $900 billion in pandemic-related stimulus.
The new year brings with it a sense of hope: hope that the virus will be controlled; hope for a return to some form of normalcy in our daily lives; hope for economic prosperity and job security; and hope for peace, both here and around the world — and a good riddance to 2020.
|Market / Index||2019 Close||As of 9/30||2020 Close||Month Change||Q4 Change||2020 Change|
|Fed. Funds||1.50%-1.75%||0.00%-0.25%||0.00%-0.25%||0 bps||0 bps||-150 bps|
|10-year Treasuries||1.91%||0.67%||0.91%||7 bps||24 bps||-100 bps|
|As of 9/30||27781.70|
|As of 9/30||11167.51|
|As of 9/30||3363.00|
|As of 9/30||1507.69|
|As of 9/30||2960.93|
|As of 9/30||0.00%-0.25%|
|Month Change||0 bps|
|Q4 Change||0 bps|
|2020 Change||-150 bps|
|As of 9/30||0.67%|
|Month Change||7 bps|
|Q4 Change||24 bps|
|2020 Change||-100 bps|
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
The Economy (through November 2020)
Employment slowed in November with the addition of 245,000 new jobs, well below the totals for October (638,000) and September (661,000). The unemployment rate inched down 0.2 percentage point to 6.7% in November as the number of unemployed persons dipped from 11.1 million in October to 10.7 million in November. Despite the reduction in the number of unemployed persons, that figure is still 4.9 million higher than in February. Among the unemployed, the number of persons on temporary layoff decreased by 441,000 in November to 2.8 million. This measure is down considerably from the high of 18.1 million in April but is 2.0 million higher than its February level. In November, the number of persons not in the labor force who currently want a job increased by 448,000 to 7.1 million; this measure is 2.2 million higher than in February. In November, 21.8% of employed persons teleworked because of COVID-19, up from 21.2% in October. The labor force participation rate edged down to 61.5% in November; this is 1.9 percentage points below its February level. The employment-population ratio, at 57.3%, changed little over the month but is 3.8 percentage points lower than in February. Average hourly earnings increased by $0.09 to $29.58 in November and are up 4.4% from a year ago. The average work week remained unchanged at 34.8 hours in November.
Claims for unemployment insurance continued to drop in December. According to the latest weekly totals, as of December 19 there were 5,219,000 workers receiving unemployment insurance, down from the November 14 total of 6,071,000. The insured unemployment rate fell 0.5 percentage point to 3.6%. During the week ended December 12, Extended Benefits were available in 24 states; 51 states reported 8,459,647 continued weekly claims for Pandemic Unemployment Assistance benefits, and 51 states reported 4,772,853 continued claims for Pandemic Emergency Unemployment Compensation benefits.
In contrast to the second-quarter gross domestic product, which fell 31.4%, the third-quarter GDP shows the economy advanced at an annual rate of 33.4%, as the country continued to rebound from the economic effects of the COVID-19 virus. Consumer spending, as measured by personal consumption expenditures, increased 41.0% in the third quarter, in contrast to a 33.2% decline in the second quarter. The increase in PCE accounted for 25.44% of the change in GDP. Nonresidential (business) investment vaulted 22.9% (-27.2% in the second quarter); residential fixed investment soared 63.0% after falling 35.6% in the prior quarter. Exports advanced 59.6% (-64.4% in the second quarter), and imports increased 93.1% (-54.1% in the second quarter). Federal nondefense government expenditures decreased 18.3% in the third quarter as federal stimulus payments and aid lessened.
November saw the federal budget deficit come in at a smaller-than-expected $145.3 billion, down roughly 30% from November 2019. However, the deficit for the first two months of fiscal year 2021, at $429.3 billion, is 25% higher than the first two months of the previous fiscal year. Through November, government outlays rose 9.0%, while receipts fell 3.0%. The rise in government expenditures for fiscal year 2021 is attributable to a 67% increase in outlays for income security, an 18% jump in outlays for health, and a 214% climb in community and regional development payments. Medicare outlays fell about 15% compared to the same period last year.
The COVID-19 pandemic clearly impacted personal income and spending in November. According to the latest Personal Income and Outlays report, personal income and disposable personal income decreased 1.1% and 1.2%, respectively, after decreasing 0.6% and 0.7% in October. Consumer spending fell 0.4% in November after increasing 0.3% the previous month. Inflation remained muted as consumer prices were unchanged in November and October. Consumer prices have increased by a mere 1.1% over the last 12 months ended in November.
The Consumer Price Index climbed 0.2% in November after being unchanged in October. Over the 12 months ended in November, the CPI rose 1.2%. The prices for lodging away from home, household furnishings and operations, recreation, apparel, airline fares, and motor vehicle insurance increased in November. Prices for used cars and trucks, medical care, and new vehicles declined over the month. Increases in shelter and energy were major factors in the CPI increase. Core prices (less food and energy) increased 0.2% in November and are up 1.6% over the 12 months ended in November.
Prices that producers receive for goods and services rose 0.1% in November following a 0.3% October jump. Producer prices increased 0.8% for the 12 months ended in November, the largest advance since moving up 1.1% for the 12 months ended in February. Producer prices less foods, energy, and trade services rose for the seventh consecutive month after advancing 0.1% in November. For the 12 months ended in November, prices less foods, energy, and trade services moved up 0.9%, the largest rise since a 1.0% increase for the 12 months ended in March.
Sales of existing homes fell in November after advancing in each of the previous five months. Existing home sales dropped 2.5% in November but are up 25.8% from a year ago. The median existing-home price was $310,800 in November ($313,000 in October). Unsold inventory of existing homes represents a 2.3-month supply at the current sales pace, a record low. Sales of existing single-family homes fell 2.4% in November following a 4.1% jump in October. Over the last 12 months, sales of existing single-family homes are up 25.6%. The median existing single-family home price was $315,500 in November, down from $317,700 in October.
New single-family home sales continued to slide, dropping 11.0% in November after falling 0.3% in October. The median sales price of new single-family houses sold in November was $335,300 ($330,600 in October). The November average sales price was $390,100 ($386,200 in October). The inventory of new single-family homes for sale in November represents a supply of 4.1 months at the current sales pace, up from the October estimate of 3.6 months.
Industrial production has risen to within 5.0% of its pre-pandemic (February) level after increasing 0.4% in November. By comparison, industrial production in April was 16.5% below its February level. Manufacturing output rose 0.8% in November, marking the seventh consecutive month of gains. An increase of 5.3% for motor vehicles and parts contributed significantly to the gain in factory production; excluding motor vehicles and parts, manufacturing output moved up 0.4%. In November, utilities declined 4.2% as unusually warm temperatures reduced demand. Mining production increased 2.3% in November after falling 0.7% in October. In November, total industrial production was 5.5% lower than a year earlier.
For the seventh consecutive month, new orders for durable goods increased in November, climbing 0.9% following a 1.8% jump in October. Despite the trend of monthly increases, new orders for manufactured durable goods were 8.0% lower than a year ago. Excluding transportation, new orders increased 0.4% in November (+1.3% in October). Excluding defense, new orders increased 0.7% in November (+0.2% in October). Transportation equipment, up in six of the last seven months, led the increase, climbing 1.9% in November (+1.5% in October).
Both import and export prices inched higher in November. Import prices rose 0.1% after falling 0.1% in the prior month, an increase largely driven by higher fuel prices. Import prices excluding fuel dropped 0.3% in November. Despite the recent increases, prices for imports decreased 1.0% from November 2019 to November 2020. Export prices advanced 0.2% in November after declining 0.1% in October. Overall, export prices dipped 1.3% over the past year. Agricultural export prices rose 2.2% in November, while nonagricultural prices for items such as consumer goods, automobiles, and industrial supplies and materials were unchanged, but are down 1.6% during the 12 months ended in November.
The international trade in goods deficit was $84.8 billion in November, up $4.4 billion, or 5.25%, from October. Exports of goods were $127.2 billion in November, $1.1 billion, or 0.8%, more than in October. Imports of goods were $212.0 billion in November, $5.5 billion, or 2.6%, more than in October. Driving exports higher in November were foods, feeds, and beverages (4.3%), and industrial supplies (1.5%). After increasing 5.9% in October, exports of consumer goods inched up 0.8% in November. Imports of industrial supplies (2.9%), consumer goods (6.7%), and other goods (4.0%) pushed total imports higher in November. Imports of automotive vehicles fell 3.2% in November after rising 3.2% in October.
The latest information on international trade in goods and services, out December 4, is for October and shows that the goods and services trade deficit was $63.1 billion, an increase of nearly $1.0 billion, or 1.7%, over the September deficit. October exports were $182.0 billion, or 2.2%, more than September exports. October imports were $245.1 billion, or 2.1%, more than September imports. Year to date, the goods and services deficit increased $46.6 billion, or 9.5%, from the same period in 2019. Exports decreased $345.9 billion, or 16.4%. Imports fell $299.4 billion, or 11.5%.
A mutant strain of COVID spread rapidly though parts of Europe late in the year, sending stocks reeling as several affected countries tightened restrictions. This latest development will likely stall what had been a recovering European economy. Industrial production and retail sales had been approaching pre-pandemic levels in several European nations. The United Kingdom and the European Union reached a trade agreement as Brexit nears its final stages. In China, the third-quarter GDP advanced 2.7% and is 4.9% higher year-over-year.
The Conference Board Consumer Confidence Index® declined in December for the third consecutive month. The index stands at 88.6, down from 92.9 in November. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, decreased sharply from 105.9 to 90.3. However, the Expectations Index — based on consumers’ short-term outlook for income, business, and labor market conditions — increased from 84.3 in November to 87.5 in December.
Eye on the Year Ahead
The year 2021 should bring continued economic recovery. As the United States and the world inch slowly toward normalcy following the battle against the COVID-19 pandemic, stock markets, employment, and production should also advance.