Monday, June 27

Despite Struggling Economy, “Everything Rally” Powers Through New Year

By: Trevor Jones

A phenomenon known as the “Santa Claus Rally” is thought to generally bring each year to a close on a bullish note in stock markets, due to optimism around the Christmas and holiday season. In fact, over the last 70 years, the last five trading days of December and the first two of the new year have seen a positive return on the S&P 500 79% of the time. While this has not been as pronounced over the last decade, the principle of holiday optimism still holds true.

This year, the year-end rally has been much more prolonged than the last few days of the year. Since the stock market’s sharp drop in March and April due to the coronavirus outbreak, there has been surprisingly powerful market growth, despite an economy that is still recovering from the fallout of the pandemic. This has been dubbed the “everything rally” by market watchers, due to the expansive nature of the booming industries.

This “everything rally” has been broadly symbolized by the success of the three major indices: The S&P 500, the Dow Jones Industrial, and the NASDAQ. Both the S&P and the Dow Jones finished at record highs on New Years’ Eve, with the Dow Jones keeping above the 30,000-point milestone it hit in November, and the NASDAQ had its best annual return in eleven years. A wide array of companies, ETFs, and currencies have performed well on the stock market this year as well. Electric vehicle maker Tesla (TSLA) has grown close to 700% in 2020, while undergoing a 5-for-1 split of its stock in August. Tech and entertainment companies Amazon (AMZN), Disney (DIS), Netflix (NFLX), and Zoom (ZM) all saw strong growth over the year. Another big performer is the cryptocurrency Bitcoin (BTC), which saw a rise begin in October and has not stopped since. Starting 2020 at around $7,350, Bitcoin began the New Year in 2021 by breaking past $30,000.

However, these gains were not made without industries suffering. Cruise lines, airlines, movie theaters, and oil were the hardest hit by lockdowns and continue to struggle today, even with some lifted restrictions from state to state. On top of that, this stock market boom is not necessarily a sign of the economic welfare of the United States. Unemployment still hovers around 7% for the month of November, new jobless claims are stagnating or rising week to week, and the federal government continues its effort to financially fuel its citizens with stimulus money.

Will this boom continue into early 2021? That question lies in the forefront of many investors’ minds as major current events play out over the coming months. The Pfizer and Moderna coronavirus vaccines, especially the effectiveness of their rollout and the presence of any major side effects, will be the most crucial determining factor in how the market performs. This is supplemented by political events, including the inauguration and transfer of power to President-elect Joe Biden, and the Georgia Senate runoffs, where incumbent Republican senators Kelly Loeffler and David Perdue face off against Democrat challengers Raphael Warnock and Jon Ossoff in two races that will decide which party holds control of the Senate. Between these events and unforeseen news that could come to light in the coming months, there is no telling how the market will act in the future. But regardless, here’s to hoping for a more complete economic recovery from the coronavirus pandemic in 2021.