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Commentary provided by John Packs, Senior Investment Officer, AIG Retirement Services

Quarterly Market Performance Snapshot (October 1 to December 31, 2020)

  • Dow Jones Industrial Average®:  +10.7%
  • S&P 500® Index:  +12.2%
  • NASDAQ Composite® Index:  +15.6%
  • Russell 2000® Index:  +31.4%
  • Bloomberg Barclays U.S. Aggregate Bond Index:  +0.7%
  • 10-year U.S. Treasury note yield:  0.88%,  +20 basis points
  • Best-performing S&P 500 sector this quarter: Energy, +27.8%
  • Weakest-performing S&P 500 sector this quarter: Real Estate, +4.9%

    Past performance is not a guarantee of future results.

Market optimism in the fourth quarter

  • The market ended the year strong with double digit returns in major indices and small-cap stocks rallying over 30% for the quarter! This brought remarkable annual gains to major equity indices in 2020, with the S&P 500 up 18.4% for the year, the NASDAQ Composite up 48.9%, and the Russell 2000 up nearly 20%.
  • Markets were lifted by the $900 billion stimulus bill signed at the end of December. Among other provisions, the December package provides $300/week in extra unemployment benefits, $600 payments to individuals, and additional help to small businesses—all of which should help to cushion the impact of ongoing economic restrictions to contain the coronavirus.
  • Markets were also buoyed by the minutes from the December meeting of the Federal Reserve which made clear the central bank will continue its bond buying program for the foreseeable future and will provide ample notice of any decision to curtail purchases.

Potential headwinds heading into 2021

  • The virus itself continues to pose challenges. Hospitalizations are at record highs, a new strain of the virus has been discovered in many countries (including the U.S.), and initial vaccine distribution in the U.S. and Europe has not been as smooth as hoped. Containing the virus will be a major factor in how the economy performs this year.
  • Household spending and income declined in November, suggesting that consumers may be getting squeezed, though household income and savings remain above pre-pandemic levels. Current and future expected stimulus efforts are designed to boost consumer spending, which accounts for about 70% of U.S. economic activity.

Final thoughts for investors

  • 2020 offered further support for the old adage “time in the market is more important than timing the market.” Few would have predicted stocks’ harrowing roller-coaster run this year. Many investors who fled equities in February and March now wish they had stayed in the market.
  • Now isn’t the time for regrets or fear of missing out. Now is the time to speak with a financial professional about your long-term investing goals and decide how best to position your portfolio for the range of outcomes possible in 2021.
 

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