Week Ending: December 31, 2020
U.S. stock prices were mixed as several major indexes ended the year on record highs, but smaller company stocks declined and erased some of the outsized gains from the quarter. Despite small company stocks’ poor performance during the week, they were up more than 30% during the quarter and narrowly outperformed the S&P 500 for the calendar year. Value stocks finished the year with a surge and outperformed growth last week, but they still lagged growth stocks by more than 30% in 2020. Most of the major economic sectors finished the week in positive territory as defensive sectors, such as utilities and real estate outperformed. Developed foreign stocks in Europe and Asia outperformed U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields declined this past week (bond prices and yields move in opposite directions) as it became more unlikely that Congress would approve a supplemental stimulus to increase payments to $2,000 for individuals. Longer duration bonds outperformed short duration peers and high yield (below investment grade) corporate bonds were the best performing asset class, followed by investment grade corporate bonds. Investment grade corporate bonds ended the year yielding approximately 1.8% and high yield (below investment grade) corporate bonds are yielding more than 4%.
Economic data released during the week were mixed but largely overshadowed by coronavirus cases and related economic stimulus programs. Weekly initial unemployment claims dropped to 787,000 and approximately 5.2 million Americans continue to claim ongoing unemployment benefits. Lower housing inventory continues to present challenges as the November pending home sales unexpectedly declined 2.6%. The United Kingdom completed its formal separation from the European Union at the end of the year and complications are expected as new trade rules are implemented. The resurgence in new coronavirus cases has challenged Japan from both a domestic and trade perspective. The country reported weaker than expected industrial production and retail sales declined in November.