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Weekly Market Update (January 03, 2021 - January 08, 2021)

By: Craig Fehr, CFA January 08, 2021

The holiday shortened trading week saw the S&P set a fresh record high on Monday as another round of unemployment benefits and stimulus checks were announced. The market has increasingly focused on the size and magnitude of the stimulus bill as well as the rising coronavirus case count and initial stages of the vaccine rollout. Even as the vaccine is rolled out, England has extended its toughest coronavirus restrictions to three quarters of the population. This week also saw the signing of a long-awaited Brexit deal between the U.K. and the E.U. On the economic front, the Bureau of Labor and Statistics released initial jobless claims that were sizably below consensus estimates and the prior period. Although positive, the levels are still firmly elevated from pre-pandemic levels and point to a job market that is still under stress. As we enter the new year, we expect GDP growth to slow in Q1, but eventually recovering. We also expect bouts of volatility in the equity market as investors balance rising case counts and continued vaccinations, however, we think that market will be supported by historic monetary and fiscal support and has a positive long-term outlook.

Key Views for 2021

Stocks finished 2020 with a gain of more than 15%1, a welcome figure but one that doesn't begin to tell the story of the market's path to get there. Nevertheless, this was fifth year in the past decade in which the S&P 500 posted a return of more than 15%, doing so in a year that contained a global pandemic, record-breaking recession and a contentious presidential election. This highlights:

  1. the importance of staying calm when the markets seem to be panicking,
  2. the value of a disciplined investment strategy and diversified portfolio, and
  3. the forward-looking nature of the stock market.

So as we turn the page on the calendar, here are a few of our key views for 2021:

  1. The U.S. economy gets a boost from the shift to a post-vaccine phase.
    We anticipate tepid expansion in the early portion of the year, stunted by lingering measures to slow the spread of COVID-19. Growth should accelerate as the vaccine becomes widely available, allowing consumer, work, leisure and travel habits to return toward more sustainable levels. We think 2021 will begin a multi-year economic expansion, with widespread distribution of the vaccine sparking progress toward a new normal for the U.S. economy. Meanwhile, the one-two punch of monetary and fiscal policy stimulus will keep a tailwind at the economy’s back.
  2. Unemployment continues to decline, supporting a consumer comeback.
    Further improvement in the labor market will be a key driver to a durable, self-sustaining recovery in 2021, in our view. We don’t think unemployment will snap back to a pre-pandemic level of 3.5% in 2021, but the labor market will continue to heal as the economy gradually reopens. We believe further job gains and healthy consumer balance sheets (including a current personal savings rate that is double the historical average) will drive household spending higher as we progress.
  3. The bull market continues with broader shoulders.
    We think this new bull market in stocks will have legs, powered by an improving economy, low interest rates and our expectation for corporate earnings to recover to their pre-pandemic peak by the end of 2021. A handful of U.S. large-cap tech names accounted for a disproportionate share of the market gains in 2020. We believe that as the economic reopening accelerates in the second half of 2021, the rally will broaden to economically sensitive investments that have lagged, including cyclical sectors, small-cap stocks and international equities.
  4. The Fed keeps its policy rate near zero even as the economy improves.
    We expect the Fed to keep rates near zero for at least the next two years. Even with the increasing likelihood of COVID-19 vaccines boosting activity in 2021, there will still be significant slack in the economy and labor market by the end of the year. Because of this, the Fed will avoid tightening policy prematurely and risk a repeat of the 2013 “taper tantrum,” which saw in a surge in Treasury yields after the Fed communicated it would reduce the pace of its asset purchase program.
  5. Longer-term interest rates rise modestly as inflation ticks up.
    While short-term rates remain anchored under continued Fed stimulus, we expect a durable rebound in demand to spur slightly firmer inflation, leading longer-term rates modestly higher. We doubt inflation pressures will rise dramatically in the short run, but the Fed’s balance sheet is bloated and markets are firmly pricing in an extended period of extraordinary monetary policy stimulus that would require low inflation. An unanticipated surge in consumer prices is a small, but material market risk bears watching.
  6. The global economy recovers, but geopolitical uncertainties remain a source of volatility.
    We think global GDP will expand in 2021 by the fastest pace since 2010 as the global economy progresses in the early stages of a new expansionary cycle. At the same time, we expect U.S.-China relations to return to the headlines, and while we don’t expect the trade rhetoric to be quite as contentious as it was in 2018 and 2019, we suspect periodic trade and geopolitical tensions will be sources of occasional market anxiety this year.

New Year's Investment Resolutions:

  • Revisit your financial goals for 2021 and beyond, including a review of your budget. Priorities could include replenishing your emergency fund, taking advantage of retirement accounts, paying down debt and/or increasing savings toward a financial goal.
  • Review your diversification to help ensure your portfolio is well-positioned to navigate what we expect will be a rotation of leadership across asset classes.
  • Set appropriate expectations for your portfolio. Keep your investment performance expectations realistic and your portfolio decisions aligned to your long-term goals to help stay on track as you progress through 2021 and beyond.

Craig Fehr, CFA
Investment Strategist

Sources: 1. Factset, S&P 500 total return.

Index Close Week YTD
Dow Jones Industrial Average 30,606 1.3% 7.2%
S&P 500 Index 3,756 1.4% 16.3%
NASDAQ 12,888



MSCI EAFE 2,147.53 1.4% 0.0%
10-yr Treasury Yield 0.92% 0.0% -1.0%
Oil ($/bbl) $48.42 0.4% -20.7%


$118.19 0.2% 7.4%

Source: Morningstar, 1/3/2021.  *3-day performance ending on Wednesday. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.

The Week Ahead

The upcoming week will see the PMI composite, Unemployment Rate, and Factory Orders data being released.

Important Information

The Weekly Market Update is published every Friday, after market close. 

This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.

Past performance does not guarantee future results.

Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.

Diversification does not guarantee a profit or protect against loss.

Systematic investing does not guarantee a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.

Dividends may be increased, decreased or eliminated at any time without notice.

Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

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