Weekly Market Commentary (December 28 – January 01)
Global Market Highlights
The major equity indices ended the week in the green as they hit all-time highs. The indices closed out the year with solid gains led by the Nasdaq Composite index which closed its best annual performance since 2009. Within the S&P 500 index, healthcare stocks and consumer discretionary shares were strong, helped by gains in the new arrival, Tesla.
Stocks started the week off on a positive note as Donald Trump signed a $900 billion coronavirus relief bill over the weekend. House Democrats, with a small amount of Republican support, quickly passed legislation on Monday evening to raise direct payments to USD 2,000, as President Trump had requested, but Senate Majority Leader Mitch McConnell objected to the measure being put up for approval by unanimous consent in the Republican-controlled Senate. McConnell also said the Senate would soon bring some of the president's priorities into focus, though no replacement bill emerged in the Senate by the end of the trading week.
Optimism over the rollout of new vaccines against the virus also supported market sentiment especially after the UK became the first country on Wednesday to approve the use of the vaccines developed by AstraZeneca and Oxford University. Slower-than-expected distribution of the currently authorized Pfizer/BioNTech and Moderna vaccines may have dampened enthusiasm somewhat, however, as may have the discovery on Tuesday of the first domestic case of an apparently more infectious strain of the virus.
The economic calendar this week was light with housing data being the only major data released. Home prices rose faster than expected in October, while NOvember pending home sales unexpectedly fell 2.6%. Weekly jobless claims sat at 787,000 which is the lowest level in almost a month.
The Dow Jones Industrial Average gained 1.35%, the S&P 500 index was up 1.49%, while the Nasdaq Composite index increased by only 0.65%. As this was the last week of 2020, it is important to assess how the major indexes performed for the year. The DJIA gained 7.25%, the S&P 500 ended the year with 16.26%, while the Nasdaq Composite index was up an incredible 43.46%.
European markets also rose for the week as the UK and the EU signed the trade accord and as the US approved a fiscal stimulus package. The German Dax 30 index gained 0.97%, while the UK’s FTSE 100 dropped 0.75% mainly due to the stronger British pound which reached its highest level in a year.
The UK government extended its strictest restrictions to additional areas, seeking to curb a surge in infections, hospitalizations, and deaths caused, in large part, by a new variant of the coronavirus. Three-quarters of the country is now in a de facto lockdown. After regulatory approval, the authorities began deploying a second vaccine, one produced by AstraZeneca and Oxford University, enabling the government to accelerate its inoculation program. EU countries began to distribute the Pfizer/BioNTech vaccine to those most at risk. The EU also exercised its option to buy another 100 million doses of the vaccine.
China and the EU agreed on an investment treaty after seven years of talks. The EU would gain improved access to the Chinese market for automotive, private health care, cloud computing, and air transport services industries, among others. The EU would also receive similar benefits in the insurance and asset management industries to the ones secured by the U.S. in its Phase 1 trade deal with China. The two sides have yet to ratify the treaty. The EU hopes it will come into effect in 2022.
Asian markets ended the week higher as the Japanese Nikkei 225 index gained 3%, while it gained 16% for the year. In China, the Shanghai Composite index advanced 14%, while the CSI 300 index rallied 27% for the year.
In Japan, government data showed that the nation's industrial output growth was unchanged in November, which reflects the weakness of the global economic recovery and the resurgence of the number of new COVID-19 cases. The Ministry of Economy, Trade, and Industry’s latest survey showed that manufacturers expect a further output decline in December and a sharp 7.1% rebound in January.
Tokyo’s government reported 1,337 coronavirus infections on Thursday (a record high), bringing the monthly total to more than 19,000. Tokyo Governor Yuriko Koike said that holiday shopping was the apparent cause for the recent increase, and she reiterated her request that people stay home and avoid large gatherings. The city’s pandemic response experts warned that the capitol could run out of hospital beds if the pace of new cases persists. Tokyo raised its alert level to the highest of four in mid-December due to the stress on the medical system and the discovery of new more transmittable strains.