Treasury yields hit two key levels the first week of 2021. As shown in the LPL Chart of the Day, the 10-year Treasury yield moved above 1% for the first time since March 2020, and the 10-year breakeven inflation rate, a measure of Treasury market-implied inflation expectations, climbed above 2% for the first time since November 2018.
Brexit, the United Kingdom’s (UK) withdrawal from the European Union (EU), is making news again as it stumbles toward its apparent conclusion on December 31, 2020. The major sticking point now: fish.
Stocks continue to surprise to the upside, with the Russell 2000 Index (small caps) and the Nasdaq making new all-time highs on Tuesday. The S&P 500 Index, a chip shot from new highs, already has made 30 new highs so far this year. “One thing that surprises many investors is new highs happen in clusters that can last a decade or more,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Given that this cluster of new highs is only seven years old, history would suggest that we don’t bet against several more years of new highs.”
Stocks Are Sparked for Gains in 2021
What a month November was! Here are some of the highlights:
Real-time European COVID-19 and economic data provides an insight into how the pandemic is affecting economies around the world. We’re monitoring real-time data because traditional economic data is too slow to pick up the changes that are occurring.
Bond markets have had quite a ride since Election Day. The 10-year Treasury yield had been climbing very slowly in the months leading up to the election as the economy improved, but possibly also in anticipation of a potential Democratic sweep that could lead to a larger stimulus package. As shown in the LPL Chart of the Day, as polls were starting to close on Election Day, the 10-year Treasury yield had moved above 0.90%, a level at which it had not closed since June and then only barely. But then early results out of Florida and North Carolina let us know that this would be a closer election than many thought, and yields fell dramatically.
The election is over, but the questions are mounting. We don’t know who will be the next president as of Wednesday morning, but we do know that stocks tend to do well the final two months of an election year. “Once the uncertainty is over, stocks tend to rally in November and December, with November the best month of the year during an election year,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Of course, 2020 isn’t like any other year, and we still could be a ways away from who the winner will be.”
We have seen a historic rebound in economic growth since the US economy emerged from lockdowns, but the pace of the economic rebound has tapered in recent weeks as the effects of fiscal stimulus fade. The recently released Federal Reserve (Fed) Beige Book appears to show that economic activity has become more segmented, with changes in activity varying greatly by sector—consistent with what we’ve seen from manufacturing and services data.
Stocks fared well during the third quarter despite September’s weakness, with the S&P 500 Index returning about 9%. The quarterly gain brought the return through the first nine months of the year to 5.6%. Here we peel back the onion on the third quarter’s stock performance to look at what worked and what didn’t.