Stocks Wrap Up the Holiday Shortened Session Higher

U.S. equities closed modestly higher in an abbreviated session to finish the holiday shortened week. The session turned out to be fairly quiet as yesterday's headlines carried into today. Most of the attention today seemed to surround the uncertainty of the future of the fiscal relief and government spending bill passed by Congress earlier this week, as President Trump threatened to veto the measure, calling on lawmakers to increase the direct payments to households under the package. Focus on the vaccine front remained after Pfizer and BioNTech announced a deal to provide the U.S. government an additional 100 million doses of its serum, while Merck & Co. also reached an agreement with the government on the manufacture and supply of its COVID-19 therapeutic. Treasuries were higher, pressuring bond yields and the U.S. dollar ticked to the downside amid a dormant economic calendar, while crude oil prices were modestly higher and gold edged higher. Asia finished with most bourses in the green, and markets that were open in Europe finished mostly higher ahead of the announcement that the U.K. and European Union have struck a historic trade deal.

The Dow Jones Industrial Average rose 70 points (0.2%) to 30,200, the S&P 500 Index was up 13 points (0.4%) at 3,703, and the Nasdaq Composite advanced 34 points (0.3%) to 12,805. In light volume, 381 million shares were traded on the NYSE and 3.2 billion shares changed hands on the Nasdaq. WTI crude oil was $0.09 lower at $48.21 per barrel and wholesale gasoline was unchanged at $1.37 per gallon. Elsewhere, the Bloomberg gold spot price added $6.77 to $1,879.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.1% to 90.30. Markets were mixed for the week, as the DJIA rose 0.1%, the S&P 500 declined 0.2%, and the Nasdaq Composite increased 0.4%.

Stocks were higher despite uncertainty surrounding the future of the fiscal relief package passed by Congress earlier this week. Less than a day after the U.S. Congress approved the long-awaited, and long-delayed, fiscal and government spending deal, President Trump called for Congress to change a number of items in the $900 billion measure, threatening to veto the bill as it is. Trump requested lawmakers to increase the direct payments to households to $2,000, or $4,000 per couple, a move that prompted a quick response from House Speaker Nancy Pelosi that the Democrats were ready to bring such a proposal to the Floor this week for a vote.

Progress on the COVID-19 vaccine front remained one of the main catalysts, after Pfizer Inc. (PFE $37) announced yesterday that it has reached an agreement with the U.S. government to provide 100 million more doses of its serum co-developed with BioNTech SE (BNTX $97). The new order, which is expected to be delivered by the end of July, brings the total number of doses provided by the firms to 200 million. Merck & Co., Inc. (MRK $80) also struck a deal with the government for the manufacture and supply of its COVID-19 therapeutic.

Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Rise Up: Vaccines Brought Broader Market Participation, how the market's tenor changed in early September as economic optimism began to pick up; kicked into even higher gear since positive vaccine news erupted. Liz Ann notes that rotations have been in fits-and-starts; and with changing characteristics; however, euphoria and speculative froth has become a risk heading into 2021. She concludes that investors should maintain discipline around diversification and rebalancing. In addition, as noted 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.

With the end of 2020 fast approaching, check out our outlooks for equities, bonds and the global markets, as well as our latest Schwab Sector Views: Could 2021 Be Normal? on our Market Insights page on www.schwab.com, and you can follow us on Twitter at @SchwabResearch.

Economic calendar dormant heading into holiday break Treasuries were higher, with the yield on the 2-year little changed at 0.12%, while the yields on the 10-year note and 30-year bond declined 2 basis points to 0.92% and 1.66%, respectively.

Schwab's Chief Fixed Income Strategist 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. The economic calendar was dormant today following a slew of mixed reports this week. Highlights of the docket this week included the final look (of three) at Q3 Gross Domestic Product (GDP) being favorably revised to a quarter-over-quarter (q/q) annualized rate of expansion of 33.4%, above forecasts, as well as an upward adjustment to the personal consumption of the report. Weekly initial jobless claims moderated, welcome news after the figure had been edging higher the past few weeks. Consumer Confidence declined more than expected this month, with the labor differential—consumers’ appraisal of jobs being "plentiful" minus being "hard to get"—falling into negative territory, and the December final University of Michigan Consumer Sentiment Index was revised lower, but it was still an increase from November's reading. On the other side of the ledger, personal income and spending figures fell well short of expectations and preliminary durable goods orders for November were mixed, while housing reports, which has been one of the bright spots of the economy during the pandemic, disappointed, with existing home sales posting its first decline in six months and new home sales hitting the lowest level since June.

Next week will be shortened by the New Year's holiday, and the economic docket will be far less busy, but there are some items that could garner attention. More housing data is slated for release in the form of pending home sales and the S&P CoreLogic Case-Shiller Home Price Index, as well as weekly MBA Mortgage Applications. The first look at wholesale inventoriesis also on tap, as well as weekly initial jobless claimsfor the week ended December 26. Lastly, the Dallas Fed Manufacturing Index and the Chicago PMI will put the finishing touches on regional manufacturing data for the month.

Please note: the U.S. markets will close early today and remain shuttered tomorrow in observance of the Christmas holiday.

Asia and Europe see gains amid increased Brexit optimism

For the European markets that were open today, equities traded mostly higher amid increased hopes of a Brexit deal after Bloomberg reported yesterday that an outline for the trade deal has been reached. After the markets closed, it was reported that Britain and the European Union (EU) agreed on trading arrangements, barely avoiding a year-end deadline of a 'hard exit" scenario. However, gains in the U.K. were muted amid the continued uneasiness over the spread of a new variant of the coronavirus that has shut down most of the nation, and has prompted several countries in Europe to halt all travel from Britain as a result. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his 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 euro and British pound traded higher versus the U.S. dollar, while bond yields in the Eurozone gained ground and U.K. rates saw some pressure. Markets in Germany, Italy and Switzerland were closed.

The U.K. FTSE 100 Index ticked 0.1% higher, France's CAC-40 Index declined 0.1%, and Spain's IBEX 35 Index was up 0.5%.

Stocks in Asia finished mostly higher in lighter-than-usual volume, as many markets in the region closed early heading into the holiday break. The gains came despite uncertainty surrounding a new variant of the coronavirus, as the rise in cases in the region has prompted some Asian countries to warn of tougher restrictions. South Korea's Prime Minister announced new curbs on gatherings and stricter rules towards restaurants, while government officials in Hong Kong suggested that curfews and non-essential business closures were near possibilities. China's Shanghai Composite Index was the lone bourse in the region to lose ground, declining 0.6%, amid weakness in internet companies following reports that Chinese regulators will initiate a probe into tech giant Alibaba Group Holding (BABA $222) for suspected monopolistic behavior. Shares of Alibaba plunged 8%, keeping gains for the Hong Kong Hang Seng Index in check, which increased 0.2% in an abbreviated session. Elsewhere, Japan's Nikkei 225 Index increased 0.5% amid some strength in the yen, and Australia's S&P/ASX 200 Index moved 0.3% higher in a shortened session. South Korea's Kospi Index jumped 1.7%, while India's S&P BSE Sensex 30 Index was up 1.1%. As 2021 draws near, Schwab's Jeffrey Kleintop offers a look at the Top Five Global Investment Risks In 2021, noting that they are all surprises to the consensus view: problems with the vaccine rollout, geopolitical and trade tensions do not subside, fiscal and/or monetary policy tightens, a “zombie” economy, and interest rate/dollar shock.

Similar to the U.S., next week's international economic calendar will be fairly light and include: China—manufacturing and services PMIs; Japan—industrial production; Germany—retail sales; U.K.—housing prices.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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Stocks Wrap Up the Holiday Shortened Session Higher

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