The global stock markets began the 4th quarter with some downward pressure. However, by November, it was off to the races once again. With the uncertainty of the US election behind us and the approval of
two COVID-19 vaccines approvals on the horizon, the global markets resumed their bullish stance. For the quarter, the Dow Jones Average was up 10.7%, the S&P 500 up 12.1% and the Nasdaq up 15.6%. For calendar 2020, that translated into the Dow rising 9.7%, S&P up 18.3% and Nasdaq up an astounding 45%. From the March lows, the stock market, as measured by the S&P was up 68% off its lows. The 30-year U.S Treasury also rallied, ended the year at 1.65% down from 2.39% at year-end 2019. The rally was global with the MSCI All Country World Index hitting a record high on the last day of 2020. However, International stocks as measured by the MSCI All Country World-ex US Index in dollar terms are still lower
than their peak of 2007.

Global Central Banks continued to support their currencies, propping up their economies as well as buying as much of the new issue debt (both Governmental and in many cases corporate) as they were able. As a result, the BOFAML US High Yield Index saw yields touch a record low of 4.33% in December, though spreads were at 386 basis points, still higher than normal cycle lows of approximately 250 basis points due to the aforementioned plunge in Treasury bond yields. Governments around the World also continued to fight Covid-19 with more and more funds. In the U.S, Congress has added trillions of dollars of debt to the economy during. In dollar terms one of every five US dollars in existence today was created in 2020. Legislation to further support the beleaguered US economy continued with a $900 billion package passed in the waning days of 2020. Unfortunately, it does little to bring back the lost jobs of 2020 of which only 55% of those jobs had returned by year-end.

With many state economies shut down and their populations at home, the US savings rate climbed to 33% while the money supply is up 25%. While many recipients of the US Congress’ largess needed the funds in the most recent tax package, a significant percentage have no desire to spend those funds. Instead, they will go into savings and/or be possibly invested. By better targeting those funds, Congress could have designed an approach that would result in majority of the funds being spent in the quarter. Despite the vaccines availability rising and new ones on the horizon, at the current rate of vaccination, the vast majority of the US (and even global population) will not be vaccinated until late Spring / early Summer of 2021. International vaccination rates will also bear close watching to ensure that progress is being made on the global front.

We anticipate that market volatility should ramp-up further as we head into Spring as a 10 percent correction in the markets looks increasingly likely. As the Covid-19 epidemic takes its toll on humanity, dislocation in global markets is not out of the question, especially given elevated valuations. Our continuing search for undervalued assets requires patience.

Lastly, the U.S. dollar bears close watching. The recent steep decline in its value, coupled with an increase in the price of gold and a significant rally in the value of Bitcoin could spell concern. Expect a ‘new normal’ to manifest itself as we put 2020’s unprecedented challenges behind us in 2021. Until next quarter, stay safe and healthy.