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Mixed start to year for markets

Markets took a bit of a break to start the year, as volatility at month-end, driven by fears of a more contagious variant of the COVID-19 virus, pulled back earlier gains. The S&P 500 ended the month down 1.01 percent, and the Dow Jones Industrial Average dropped 1.95 percent. The Nasdaq Composite did better, finishing the month with a 1.44 percent gain, but even this technology-heavy index was hit by late-month volatility.

General Market News

• We saw mixed trading in the fixed income markets last week, with purchases ticking up on the shorter and longer ends of the curve. The 10-year Treasury yield opened last week at 1.09 percent and closed at 1.07 percent. It opened this morning at 1.09 percent. The 30-year opened this morning at 1.84 percent, a gain of 1 basis point from last week’s opening. On the shorter end of the curve, we saw a sizable move; the 2-year opened last week at 0.13 percent and dropped to 0.11 percent at the opening this morning.

Right now, the big picture is positive. New cases, positive testing rates, and hospitalizations have continued to trend down, while vaccinations continue to scale up. If these current trends continue, we should see continued improvement, and the worst of the pandemic could be behind us.

General Market News  

• There was minimal flattening in the yield curve during the holiday-shortened week. The 10-year Treasury yield opened at 1.09 percent and closed at 1.05 percent. This morning, the 10-year yield opened just below 1.07 percent—a loss of approximately 2 basis points (bps) since last week’s open. The 30-year opened at 1.82 percent, a loss of 2 bps from last week’s open of 1.84. On the shorter end of the curve, the 2-year opened last week at 0.14 percent and lost 1 bp at the opening this morning.

This week, the big picture has been good. The trends are now positive and are likely to remain that way. The post-Christmas/New Year travel surge has faded, testing has resumed at scale, and the positive test rates have dropped back down.

General Market News  

• After major steepening last week, there has been little movement in the yield curve. The 10-year Treasury yield opened at 1.12 percent and closed the week at 1.11 percent. This morning, the 10-year yield opened just above 1.10 percent—a loss of approximately 2 basis points (bps). The 30-year opened at 1.85 percent, which was a loss of roughly 2 bps from last week’s open of 1.88 percent. On the shorter end of the curve, the 2-year opened last week at 0.14 percent and added 0.6 bps at the opening this morning. Bond investors seem to be caught in between the Biden team’s $1.9 trillion stimulus proposal and lackluster economic data.

Over the past week, case counts rose to new highs, due to holiday travel showing up in the data. By the end of the week, however, there were signs that case growth was starting to peak. Still, the events in Washington on January 6 present a risk of another wave of travel-induced infections.

General Market News

• After little movement during the week of New Year’s, we saw significant steepening of the yield curve in the first week of 2021. The 10-year Treasury yield opened at 0.93 percent and closed just shy of 1.11 percent. This morning, the 10-year yield opened just above 1.13 percent—a pickup of 20 basis points (bps) in just one week. The 30-year yield opened at 1.9 percent—a gain of more than 23 bps from last week’s open of 1.66 percent. On the shorter end of the curve, the 2-year opened last week at 0.14 percent and fell just 1.2 bps at the opening this morning. The pickup in yields was predominantly driven by the results of the Georgia runoffs, as two additional senators for the Democratic Party increases the likelihood of additional stimulus.

Over the Christmas holidays, we saw the expected pullback in many coronavirus indicators. Since then (also as expected), the data has bounced back—indicating the drop was due to slower reporting rather than an actual decline in cases. As we look ahead a couple of weeks, infections due to holiday travel will show up in the data, with signs that is already starting to occur. The next two weeks are likely to show continued case growth, and we’re not through this wave yet.

Strong December caps off solid year for markets

Markets continued to rally in the final month of 2020. The Nasdaq Composite led the way with a 5.71 percent gain for the month. The S&P 500 gained 3.84 percent, and the Dow Jones Industrial Average (DJIA) rose by 3.41 percent. These results contributed to a strong quarter for markets. The Nasdaq once again led with a 15.63 percent quarterly return. The S&P 500 gained 12.15 percent while the DJIA managed a 10.73 percent return. Despite the market volatility in March and April, all three major indices finished the year in positive territory. The DJIA gained 9.72 percent for the year, and the S&P 500 returned 18.40 percent. The Nasdaq, with its heavy technology weighting, ended the year with a 44.92 percent gain.