November 2020 – a month like no other
November was the epitome of 2020. The pandemic worsened to perhaps its worst month yet, stocks were jittery early on but then rallied, major headline risk was seen around stimulus talks and the election, and holidays were disrupted. We can only hope December and the new year bring some better news and calmer times.
Stock market performances
The great news for investors is seen across all of the major stock market indices. The Dow Jones Industrial Average climbed nearly 12% while the S&P 500 rose 11%. The tech-heavy Nasdaq Composite surged 12% as well. Stellar gains were found in other niches of the market, too. Small caps, as measured by the Russell 2000 index, rocketed more than 18% to settle at a fresh all-time monthly high. Foreign stocks also had a comeback with the all-world Ex-US fund rising 13%. Nearly all the major stock market benchmarks rallied to new all-time highs.
November performance: S&P 500, DJIA, Nasdaq, Russell 2000, International index
Fears yield to hope
Take a breath for a moment. Go back one month and picture where we were. COVID-19 was getting worse, Congress couldn’t reach a deal on stimulus, the election was on the doorstep. Novice investors without a plan were piling up cash with the thesis that the market would react harshly to whatever the election outcome would be. Interestingly, the price action in the stock market was similar to that of 2016’s election! Stocks fell right before voting day, then surged after President Trump won. Gains were had through year-end and through just about all of 2017. Will history repeat? It has so far. December tends to be a strong month for stocks regardless
Financial markets outside of stocks
Checking in on other pieces of the financial markets – bonds finished modestly higher at +1% when you include dividends. International bonds provided a stronger return of 4%. Gold had a lousy month as investors fled the safe-haven asset (-5%). Oil rebounded to one of its best months on record with a 27% advance as global demand optimism persisted. Finally, the US Dollar dropped 2% to finish near its lowest level since April 2018. Interest rates rose modestly, but are still very depressed. The yield on a savings account is paltry, to say the least!
US bond market, international bond market, gold, oil, US Dollar
The economy
The American consumer continues to show resiliency. Home prices are at records, online retail spending is surging, employment is on the mend, and there’s hope that the holiday season will still feature strength from shoppers (albeit with a click of a mouse and not a trip to the mall).
The big data point on the first Friday morning of the month is the Employment Situation report. October added 638,000 jobs as the unemployment rate dropped 6.9%, better than expectations. Michigan’s jobless rate fell below the national average to 5.5% in October, down from 8.5% during September. Another important economic indicator is the ISM Manufacturing index – it rose to nearly a 2-year high for October at 59.3.
There’s more good news on the corporate earnings front. 84% of S&P 500 companies beat EPS estimates for Q3, which matches the record for the highest EPS beat percentage since FactSet began tracking the numbers in 2008. There are concerns, however, that the economy could fall into a contraction during Q1 2021 if there is no additional federal stimulus. Bridging the gap between now and when a vaccine will be widely available is important.
American spending during COVID (Bank of America Research)
COVID-19
Daily new cases continue to surge, and hospitalizations are hitting record levels. US daily deaths attributed to COVID-19 are sharply on the rise as well. It’s not a good situation no matter how you slice it. This wave of the virus is hitting the Midwest particularly hard as states such as North and South Dakota, Montana, and Wisconsin feel the brunt of it. The good news is several drug makers reported positive vaccine trial results last month. Pfizer, Moderna, and AstraZeneca each showed very promising data. The first vaccines will be available in the coming weeks with a wide distribution likely during the first half of 2021. So there’s light at the end of the tunnel.
USA COVID situation (Bank of America Research)
More good news – cases and hospitalizations are falling in Europe. Our friends overseas can be seen as a precursor of what to expect for us in the States. Europe’s peak in daily new cases happened on November 6. The hope is the peak in the USA’s cases is soon.
Year-end planning
Let’s turn away from the hoopla of the markets, economy, and COVID for a moment. What should YOU do? Keep on keepin’ on is not a bad strategy. Continue to invest programmatically in your retirement and college savings accounts, manage risk via appropriate levels of insurance, and have a plan.
For savers, unfortunately, retirement account contribution limits are largely the same for 2021 as they are this year, so no extra bump-up. We’d be remiss not to mention mortgage rates – they continue to run at record low levels. It remains a great time to refinance if you can save at least 1-1.5% on your borrowing rate.
What about taxes?
Many are concerned that tax rates could be on the rise with a regime change in Washington. Sure, it’s possible, but with what appears to be a divided government (Republicans are likely to control the Senate), significant tax hikes are unlikely. Still, individuals with incomes above $400,000 could see their tax bill go higher next year. It’s always a good idea to investigate whether a Roth conversion is a good idea or not. That takes some strategy and planning – sit down with us at TFC to review what you should or shouldn’t do as we approach 2021.
Proposed Biden tax plan (Kitces.com)
Thank you!
It’s been a trying year for everyone. We feel great about next year though. Hopefully, we’ll have this whole pandemic behind us soon and we can once again focus on enjoying time with friends, family, and colleagues. Thank you for your trust and relationship in 2020. The holidays are a special time when we can reflect on the year that was and make memories with our loved ones. We can’t wait to ring in the new year!