Book Closes on 2020 with Solid Yearly Gains and New Records

U.S. equities wrapped up the final session of 2020 on a high note, with the Dow and S&P 500 posting new records amid subdued volume globally as a plethora of markets were closed or traded in abbreviated sessions. The markets were resilient after bouncing back sharply from the severe disruption of the COVID-19 pandemic, courtesy of the rollout of multiple vaccines and the massive unprecedented responses in the form of global monetary and fiscal policies. However, shortly after 2021 begins, the markets will have to contend with the outcome of the key Georgia Senate runoff elections. The final data point of 2020 showed the pace of weekly initial jobless claims slowed but remained uncomfortably elevated. Treasuries were modestly higher, pressuring yields, in a shortened session for the bond markets, the U.S. dollar modestly bounced off of lows not seen since the Spring of 2018, while gold and crude oil prices nudged higher. Europe finished lower, adding to a 2020 decline, while markets in Asia were mixed.

The Dow Jones Industrial Average rose 197 points (0.7%) to 30,606, the S&P 500 Index was up 24 points (0.6%) at 3,756, while the Nasdaq Composite was 18 points (0.1%) higher at 12,888. In moderate volume, 807 million shares were traded on the NYSE and 4.7 billion shares changed hands on the Nasdaq. WTI crude oil was $0.12 higher at $48.52 per barrel and wholesale gasoline was up $0.01 at $1.41 per gallon. Elsewhere, the Bloomberg gold spot price gained $6.07 to $1,900.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.3% to 89.94. For the year, the DJIA rose 7.3%, the S&P 500 Index gained 16.3%, and the Nasdaq Composite jumped 43.6%.

As a tumultuous 2020 ends, the U.S. stock markets finished solidly higher for the year. The advance was led by the Information Technology, Consumer Discretionary and Communications Services sectors, with these groups posting year-to-date gains of 42.2%, 32.1% and 22.2%, respectively. Although clawing back some losses in the wake of multiple COVID-19 vaccines being distributed in Q4, Energy, Real Estate and Financials sectors saw yearly drawdowns of 37.3%, 5.2% and 4.1%, respectively.

Schwab's Chief Investment Strategist Liz Ann Sonders, Chief Fixed Income Strategist Kathy Jones and Chief Global Investment Strategist Jeffrey Kleintop, CFA, note in our latest Schwab Market Perspective: Watching the Wheels, encouraging news about COVID-19 vaccines has boosted hope for stronger economic growth, kicking off a rotation in stocks and equity sectors as investors look to a brighter future. However, near-term volatility is possible, as we’re not yet out of the coronavirus tunnel. Globally, emerging-market stocks have begun to outpace international developed stocks and U.S. stocks, another sign of rotation and a possible signal of things to come in 2021. A similar turning has been seen in the fixed income market, where emerging-market and high-yield bonds have outperformed U.S. Treasuries in recent months.

The first hurdle for the markets as the calendar shifts to 2021 will come from the political front, courtesy of the Georgia runoff Senate elections next week. The outcome will determine the composition of Congress and could prove pivotal in future legislation, notably implications for tax policy, fiscal relief, and infrastructure spending as discussed in our podcast, Georgia's Runoff Carries Outsized Impact.

For more on our outlooks for equities, bonds and the global markets for 2021, as well as our latest Schwab Sector Views: Could 2021 Be Normal?, check out our Market Insights page on www.schwab.com, and follow us on Twitter at @SchwabResearch.

The last data point of 2020 shows jobless claims decelerated but remain painfully elevated

Weekly initial jobless claims (chart) came in at a level of 787,000 for the week ended December 26, below the Bloomberg consensus estimate of 835,000, and compared to the prior week's upwardly-revised 806,000 level. The four-week moving average rose by 17,750 to 836,750, while continuing claims for the week ended December 19 fell by 103,000 to 5,219,000, south of estimates of 5,370,000. The four-week moving average of continuing claims fell by 77,000 to 5,457,250.

Treasuries were mostly higher, as the yield on the 2-year note was little changed at 0.12%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 0.92% and 1.65%, respectively. The U.S. Dollar Index was down 6.7% for the year, touching levels not seen since the Spring of 2018.

Schwab's Kathy Jones notes in her latest 2021 Fixed Income Outlook: Calmer Waters, how we see the potential for 10-year Treasury bond yields to trade in a range of 1% to as high as 1.6% in 2021, reflecting the prospects for real economic growth to recover at a faster pace amid the backdrop of the vaccine rollout and further fiscal stimulus. Meanwhile, short-term interest rates are likely to remain pinned near zero throughout the year as the Fed waits to "normalize" interest rates until inflation rises. Consequently, the yield curve should steepen as the difference between short and long-term yields expands.

Please Note: All U.S. markets will be closed tomorrow, and the bond markets will close early today at 2:00 p.m. ET, in observance of the New Year holiday.

As the markets return for the first week of 2021, they will be greeted by a fully-loaded economic calendar, headlined by Friday's December nonfarm payroll report, projected to show 68,000 jobs were created after the 245,000 gain seen in November. Ahead of the report, we will get manufacturing and services sector reads for December by the Institute for Supply Management (ISM) and Markit, the minutes from the Federal Open Market Committee's (FOMC) December monetary policy meeting, the trade balance and initial jobless claimsfor the week ended January 2.

Europe adds to 2020 decline, Asia mixed in subdued session

European equities finished lower in the final session of 2020 that saw volume lighter than usual with markets in Germany, Italy and Switzerland closed, and as most markets closed early. For the year, the Stoxx Europe 600 Index shed 4.0%, as markets in the region were able to claw back a large amount of losses in Q4 amid the progress on the COVID-19 vaccine front and a host of relief measures from global monetary and fiscal policies. The euro was lower versus the U.S. dollar and the British pound was higher, while bond yields in the U.K. lost ground. The economic calendar was void of any major releases today. Schwab's Jeffrey Kleintop notes in his latest article, A Vaccine: The Best 2020 Holiday Gift, how a COVID-19 vaccine being administered globally has lifted the stock markets around the world. But he cautions that the reality of the rollout faces risks that could extend the time frame for mass immunizations. Jeff adds that we expect markets to be volatile in coming months while the threat of new lockdowns weighs against the hope of recovery, although we believe we may be on the verge of a period of international stock market outperformance.

The U.K. FTSE 100 Index was down 1.5%, France's CAC-40 Index declined 0.9%, and Spain's IBEX 35 Index fell 1.0%.

Stocks in Asia finished mixed in light volume to close out 2020, as markets in Japan and South Korea were closed and Australia and Hong Kong traded in abbreviated sessions. Chinese stocks gained solid ground to ring in the New Year, aided by December reads on manufacturing and services sector output showing although the pace slowed, both remained in expansion territory. China's Shanghai Composite Index rallied 1.7%, capping off a solid yearly gain of more than 13%. The Hong Kong Hang Seng Index increased 0.3% to modestly trim its 2020 loss to about 3%. India's S&P BSE Sensex 30 Index finished little changed, posting a yearly gain of nearly 16% that was aided by the recent drop in the U.S. dollar that bolstered Emerging Markets. However, Australia's S&P/ASX 200 Index fell 1.4% amid a broad-based decline, which resulted in a 2020 dip of approximately 1.5%. As 2020 culminates, Schwab's Jeffrey Kleintop discusses the Top Five Global Investment Risks in 2021, noting how risk is often the result of a very high degree of confidence among market participants in one specific outcome.

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Book Closes on 2020 with Solid Yearly Gains and New Records

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