Weekly Market Insights: The Year in Review

The Dow Jones Industrial Average gained 1.35%, while the Standard & Poor’s 500 increased by 1.43%. The Nasdaq Composite index, which led all year, added 0.65%. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.02%.^1,2,3

The Year in Brief

The global pandemic disrupted economies, financial markets, and daily life. Households and businesses faced unprecedented challenges. Early in the year, the U.S.-China tariff dispute eased, the Brexit referendum progressed, and the first U.S. COVID-19 cases appeared. Spring brought stay-at-home orders that curtailed business activity and reduced consumer spending. The federal government responded with stimulus payments to millions of Americans.

Wall Street rebounded from its March downturn, while the economy grew unevenly. The pandemic worsened in the fall, but November brought hope with two promising vaccines. By winter, vaccinations began rolling out, and Congress approved a second national stimulus. As 2021 began, global markets and economies remained focused on vaccine distribution and economic recovery.

The U.S. Economy

The pandemic disrupted the U.S. economy, causing our usual economic indicators to show unusual readings.

Economic Shock from the Pandemic

The Department of Labor’s main jobless rate jumped from 3.5% in February to 14.7% by April. Over the next seven months, headline unemployment gradually fell to 6.7% by November. Meanwhile, the U-6 rate, which measures both unemployment and underemployment, peaked at 22.8% in April.4,5

As people stayed home, consumer spending trended lower, falling 6.9% in March and 12.6% in April.⁶

Government and Federal Reserve Response

To stimulate the economy, the federal government passed a $2 trillion economic stimulus bill in March. The legislation included direct cash payments to households, temporary increases in unemployment benefits, and Small Business Administration support offering funds equal to eight weeks of payroll for distressed companies. Aid began rolling out in April. In May, the White House launched Operation Warp Speed, a public-private partnership to accelerate COVID-19 vaccine development. By fall, the FDA approved two vaccines.^7,8

The Federal Reserve lowered the benchmark interest rate to 0–0.25% and revived emergency loan programs originally introduced in 2008. It also partnered with the Treasury to purchase corporate bonds and encourage business lending. In August, the Fed announced it would tolerate slightly higher inflation in pursuit of full employment.^9,10

As stay-at-home orders lifted in mid-year, the economy rebounded. GDP contracted 31.4% in Q2 but grew 33.4% in Q3. Consumer spending surged 41.0% in Q3. Later, renewed restrictions in Q4 prompted another federal stimulus in December.¹¹

Mid-Year Rebound and Housing Market Strength

The housing market stayed strong. By November, existing home sales were up 25.8% year-over-year, according to the National Association of Realtors; Census Bureau data showed a 20.8% annualized improvement for new home buying.^12,13

The U.S.-China tariff dispute eased throughout the year. In the January 2020 trade talks, the U.S. promised to lessen import taxes on Chinese goods, and China agreed to buy more American exports.¹⁴

The Global Economy

The International Monetary Fund (IMF) expects the world economy to shrink by 4.4% in 2020. If that estimate holds, it will mark the worst year for global growth since the 1930s. The U.S. economy contracted 4.3%, which is better than the eurozone’s estimated 8.3% decline. Meanwhile, China managed to grow 1.9% last year. Looking ahead to 2021, the IMF projects GDP growth of 8.2% for China, 5.2% for the eurozone, and 3.1% for the U.S.^15,16

In December, the European Union and United Kingdom finalized a post-Brexit trade deal. This agreement completed the Brexit process that started with the 2016 leave vote and included the U.K.’s formal exit from the EU earlier in 2020. Under the new deal, U.K.-based businesses and financial firms face updated trade rules and additional costs, even with the pact in place.¹⁷

Global Stock Market Highlights

 Stock markets around the world experienced more gains than losses in 2020:

• South Korea’s Kospi Composite surged 30.75%.

• Argentina’s MERVAL increased 22.93%.

• Taiwan’s TWII rose 22.80%.

• Japan’s Nikkei 225 climbed 16.01%.

• China’s Shanghai Composite gained 13.87%.

Some markets faced setbacks:

• Indonesia’s IDX Composite fell 5.09%.

• France’s CAC 40 dropped 7.14%.

• Russia’s RTS declined 10.42%.

• Spain’s IBEX lost 15.45%.

Overall, the MSCI EAFE Index, which tracks developed-economy stock markets in Europe and Asia, increased 5.43%.^18,19

Final Thoughts

We join all Americans in happily drawing the curtain on 2020. Though it was a challenging and tragic year for so many, there are good reasons to believe that 2021 will be a year of progress in returning to our pre-pandemic normal. We wish you and your family a healthy and happy new year!

This Week: Key Economic Data

Tuesday: Institute for Supply Management (ISM) Manufacturing PMI (Purchasing Managers Index).

Wednesday: Automated Data Processing (ADP) Employment Change, Factory Orders.

Thursday: Initial Jobless Claims, ISM Non-Manufacturing PMI.

Friday: Employment Report.

^{Source: Econoday, December 31, 2020
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

This Week: Companies Reporting Earnings

Thursday: Micron Technologies (MU), Constellation Brands (STZ), Walgreens Boots (WBA), Conagra Brands (CAG)

^{Source: Zacks, December 31, 2020
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

– Reba McEntire

Tax Benefit and Credits: FAQs for Retirees

Lots of questions can come up about income taxes after one has retired. Listed are answers to just a few common questions from retired taxpayers.

What types of income are taxable?

Some common types of taxable income include military retirement pay, all or part of pensions and annuities, all or part of individual retirement accounts (IRA), unemployment compensation, gambling income, bonuses and awards for outstanding work, and alimony or prizes.

What types of income are non-taxable?

A few examples of non-taxable income are veteran’s benefits, disability pay for certain military or government-related incidents, worker’s compensation, and cash rebates from a dealer or manufacturer of an item you purchased.

Why is my pension taxed?

It depends on how the money was put into the pension plan. For example, if all the money were contributed by the employer or the money was not taxed before going into the plan, it would be taxable. When your contribution is from already-taxed dollars, that portion of the pension is not taxed, but must be recovered over your life expectancy.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS²⁰ 

Practicing Gratitude in the New Year

Instead of opening the new year with a long list of resolutions, begin by noticing the positive aspects of your life. Practicing gratitude allows you to focus on what you already have and appreciate.

What is Gratitude?

Psychologists define gratitude as a positive emotional response to receiving a benefit from someone. In positive psychology, it represents the human ability to acknowledge the good in life. Even if gratitude doesn’t come naturally, it is a skill you can learn and strengthen over time.

Benefits of Practicing Gratitude

There are benefits to practicing gratitude, especially in times of stress and uncertainty. Gratitude invites positive emotions that can have physical benefits, through the immune and/or endocrine systems. Research shows that when we think about what we appreciate, the parasympathetic or calming part of the nervous system is triggered, which can have protective benefits for the body—including decreasing levels of the stress hormone cortisol and increasing oxytocin, the bonding hormone involved in relationships that make us feel good.

There are a few great ways to get started today and practice gratitude in your own life:

• Write thank you notes
• Keep a gratitude journal
• Follow-up with family and friends
• Give back to your family, friends, and community
• Pay kindnesses forward

Tip adapted from Psychology Today²¹

Last week’s riddle: What number logically comes next in this series: 2, 3, 5, 9, 17, __?  Answer: 33. (The difference between the two numbers is progressively multiplied by 2 and added to the next number.)

Footnotes and Sources

^{1. The Wall Street Journal, December 31, 2020}

^{2. The Wall Street Journal, December 31, 2020}

^{3. The Wall Street Journal, December 31, 2020}

^{4. Trading Economics, January 2, 2021}

^{5. CNN Business, May 8, 2020}

^{6. Investing.com, January 2, 2021}

^{7. Los Angeles Times, December 18, 2020}

^{8. Treasury.gov, January 2, 2021}

^{9. New York Times, December 23, 2020}

^{10. Reuters, August 27, 2020}

^{11. The Balance, December 27, 2020}

^{12. Reuters, December 22, 2020}

^{13. Census Bureau, December 23, 2020}

^{14. NPR, January 15, 2020}

^{15. Seattle Post-Intelligencer, December 31, 2020}

^{16. CNN Business, October 13, 2020}

^{17. The Week U.K., December 23, 2020}

^{18. Barchart.com, December 31, 2020}

^{19. Wall Street Journal, January 1, 2021}

^{20. IRS.gov, January 1, 2021}

^{21. PsychologyToday.com, October 10, 2020}

Investment Risks and Considerations

Investing involves risks, and you should make decisions based on your personal goals, time horizon, and risk tolerance. Market conditions change constantly, and the return and principal value of investments will fluctuate. When you sell, investments may be worth more or less than their original cost.

The forecasts or forward-looking statements in this material are based on assumptions. They may not materialize and are subject to revision without notice.

Understanding Market Indexes

The market indexes discussed are unmanaged and generally represent their respective markets. Index performance does not indicate past performance of a specific investment. Indexes do not incur management fees, costs, or expenses. You cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

• Dow Jones Industrial Average: Tracks large-cap U.S. companies.

• Nasdaq Composite: Tracks common stocks listed on the NASDAQ and serves as a broad indicator of technology and growth companies.

• MSCI EAFE Index: Benchmarks international equity markets in Europe, Australia, and Southeast Asia.

• S&P 500 Composite Index: Represents a broad group of U.S. stocks.

Fixed Income and Treasury Notes

^{U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.}

^{International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.}

Consult Your Financial Professional

^{Please consult your financial professional for additional information.}

^{This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.}

^{Copyright 2021 FMG Suite.}