2021 Off to a Rough Start
We were so glad for 2020 to be over, but what a first full business/trading week of 2021 it’s been to say the least. Oddly, stocks and longer-term Treasury yields ended higher amid a deadly riot at the U.S. Capitol and the relentless COVID-19 pandemic. Analysts are all over the place with their 2021 market outlook predictions, with some warning the peak has come. We generally believe outlooks are akin to fool’s gold and there are plenty of risks for investors to navigate.
The markets’ rise this week is likely due to their responding positively to two pieces of news. The Democrats’ unexpected victories in both Georgia Senate run-off elections bring a new political dawn at the White House with Democrats set to take control of both the House and Senate. It is, however, by a thin margin and Democrats and Republicans have vastly different views on nearly every issue they must consider.
The other news is President-elect Joe Biden is considering a two-prong COVID-19 stimulus plan — $1,400 payments to Americans, adding to the $600 already agreed, followed by a $3 trillion tax and infrastructure plan. But the Democrats are still well-short of a filibuster-proof 60 seat majority in the Senate.
Risks continue to abound. The U.S. lost 140,00 jobs in December, the first decline in eight months, and the jobless rate was unchanged at 6.7%. On January 7, 2021, the U.S. suffered 4,000 new COVID-19 deaths in a single day for the first time.
Inflation is on the mind of many analysts. The U.S. hasn’t seen significant inflation in almost 40 years. That may change soon, thanks to a massive federal deficit, pent-up demand when quarantine restrictions are eventually released, and the Federal Reserve’s current monetary policy. Capital Economics expect that headline and core CPI inflation picked up marginally in December, and base effects will push both well above 2% by the spring. They say rising prices of gasoline and medical care, along with a weaker dollar could raise core goods prices. On the other hand, some analysts say that a critical ingredient missing to sustain higher inflation is a tight labor market.
We like to end on a bright note whenever possible. The COVID-19 vaccine from U.S. drug company Pfizer and its German partner BioNTech appears to protect against the new highly contagious U.K. and South African variants. And the European Medicines Agency says there is an extra dose in the BioNTech–Pfizer vaccine vials.
We’ve all been through a lot this past year. At Toroso, despite many challenges, our team came together and got stronger to serve you better. Despite the rough start to 2021, may we all remain resilient, broad-minded, and able to spot silver linings – for ourselves, and for the benefit of others.
With many thanks for your support and partnership,
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