Insights and Observations

We continue to share a collection of charts that we hope you find relevant in understanding the current investment climate. As 2020 ends, the COVID-19 tragedy and stay-at-home mandate have created unusual trends within the stock market.

This month’s Chartbook shows:

• After the panic early in the year, the U.S. stock market climbed to new highs. However, the COVID-19 economy affected various market sectors very differently. While technology-driven consumer Growth stocks have been on the rise since March lows, Value stocks such as banks, insurance, utilities, and especially energy have trailed.
• Interest rates dropped to historic lows. Currently, the yield on the 10-year U.S. Treasury bond is just below 1%, rising from under 0.5% during the summer.
• To cope with the COVID-19 tragedy and stay-at-home mandate, the Federal Deficit exploded, sending overall Federal Debt to record levels.

The 2020 stock market started with optimism, then was hit hard by the pandemic, only to surprisingly climb back up through previous highs. The rally was led by technology-driven consumer Growth stocks that got the economy through the stay-at-home mandates, Now, looking forward, Growth stocks are expensive, while Value stocks are relatively inexpensive. Growth and Value stock performances usually track together. However, 2020 has resulted in a wide gap. The question is, will this gap close? When, and how?

As COVID-19 is successfully contained and our economy recovers, will the massive government effort to support our economy through this tragedy raise inflationary expectations and interest rates along with them? A modest rise in inflation and hence, interest rates should not be a threat to the stock markets but may change which stocks lead in 2021.

2020 has been a year of great tragedy, hopefully, 2021 will be a year of renewed hope.

Download the December Chartbook: December Chartbook 2020 Year End Review