Global stock markets closed out 2020 with a remarkably strong fourth quarter as COVID-19 vaccines began to be deployed and hopes rose for a brighter 2021. In the U.S., the S&P 500 (measuring large stocks) gained 12.1% and the Russell 2000 (small companies) rose 31.4%. Foreign markets followed suit with the MSCI Emerging Markets Index gaining 19.7% and MSCI World ex US (developed markets) climbing 15.9%. And although more muted, the gains have continued into 2021.
As the economic picture has brightened, bond yields have also climbed. The 10-year U.S. Treasury ended 2020 at 0.93%, and at this writing has climbed over 1.5%. Short interest rates, however, remain anchored at extreme lows given the desire of the Federal Reserve to maintain stimulative economic policies. The Federal Open Market Committee made no changes to the federal funds rate in the fourth quarter and signaled they are likely to maintain the range of 0.00% – 0.25% throughout 2021. The committee is next scheduled to meet during the third week of March.
Crude oil prices (WTI) gained over 18% in the fourth quarter, closing at $44.38 per barrel. Since January 1 the increase has been similarly strong, as hopes for a post-COVID recovery have led to prices now over $66.00. Grains and metals also climbed, with the price of gold closing the year at $1,895, an increase of nearly 25% for the year. To date, inflation has remained tame. Core CPI increased 0.3% in January, up 1.4% over the past 12 months. The gasoline index continued to increase in January, rising 7.4% and accounting for most of the seasonally adjusted increase in the all items index.
Economic data remained generally positive, as falling COVID-19 case counts in the early months of 2021 have seen rising optimism. Gross domestic product advanced at an annual rate of 4.1% in the fourth quarter of 2020. Consumer spending, as measured by personal consumption expenditures, increased 2.4% in the fourth quarter after surging 41.0% in the third quarter of 2020.
After a decrease of 140,000 jobs in December, employment figures for January and February of 2021 paint a brighter picture. 50,000 new jobs were added in January, and another 379,000 in February. The unemployment rate has fallen to 6.2%, and encouragingly, new jobs strength is beginning to be seen in the hard-hit leisure and hospitality sectors. At the same time, Congress is proceeding with another stimulus package, which may further boost the economy. Manufacturing also grew in January and February, with the Manufacturing Purchasing Managers’ Index (PMI) in February registering 58.6% – a reading over 50 signals growth.
The U.S. dollar weakened against most currencies in the fourth quarter, boosting returns of foreign securities. Most analysts foresee continued dollar weakness as foreign economies rebound and new stimulus measures are rolled out domestically. Hong Kong was the only developed country to see its currency drop against the dollar in the fourth quarter.
Looking ahead, there is cause for cautious optimism as the impacts of the pandemic begin to abate. As always, please call us to address your questions, and make sure to apprise your advisor of any changes to your financial situation.