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Santa Claus Rally & Political Turmoil

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December did not disappoint as the “Santa Claus rally” pushed domestic market indices higher by the end of the year as the top four indices followed by this report all had positive YTDs by New Year’s Eve. Political turmoil continued as President Trump still declined to accept election results and made the incoming Biden administration’s preparations difficult.

Market highlights

The pandemic is taking the lives of about 3,000 Americans per day as several vaccines are slowly being distributed across the nation. An especially contagious variant of Covid-19 is now threatening the world’s population with its appearance in over 32 countries as hospital occupancy is overflowing.

Two senatorial races in Georgia on January 5 will decide the balance of power in the national senate and portend the degree of influence democrats will be able to exert on national policy during the next two years. An ounce of Comex gold increased +$78, a barrel of West Texas Intermediate crude gained almost +$4, and gasoline was up about a penny per gallon. 10-year Treasuries gained +1 basis point to 0.94.


U.S. Markets

The Dow Jones Industrial Average rang out the old year at 30,606, a monthly increase of +783 points and a YTD of about +5.7%. Following suit, the S&P 500 gained +94 points during December by closing at 3,756, an annual gain of about +13.3% YTD.

Still assuming the role of Superman, the NASDAQ hit the end-of-the-year bell at 12,888, a December increase of +533 points and a champagne YTD of about +29.5%.

Exceeding everyone’s expectations, the Russell 2000 raced across the 2020 finish line at 1,974, increasing +138 points during the Christmas month and taking the annual red ribbon with about a +15.7% YTD.

International Markets

In Europe and Asia, some markets popped champagne as others poured prune juice. London’s FTSE 100 closed the year at 6,460 with a Santa increase of +76 points but a dismal -15% YTD based partly on the tedious woes of the interminable process of Brexit. Germany’s DAX told a different story, increasing +336 points for a New Year’s Eve close at 13,718 and a YTD of about +3.5%.

The French CAC 40 lost -30 points during December and finished 2020 at 5,551, down about -7.7% YTD. On the other side of Eurasia, the Shanghai Stock Exchange rang in the new year at 3,473, an increase of +22 points with a gain of about +11% YTD. The Hang Seng Index in Hong Kong saw the year close at 27,231, a monthly increase of +664 but an annual decrease of about -4.8% YTD. Tokyo celebrated the end of the year when the Nikkei closed at 27,568, an increase of +781 and a refreshing YTD of about +14%.

International News

De-listing Chinese Telecom Companies

The New York Stock Exchange is taking steps to de-list three of China’s largest telecommunication companies. According to MorningStar, “The New York Stock Exchange will delist China's three large telecom carriers, after a U.S. government order barring Americans from investing in companies it says help the Chinese military. China Mobile Ltd. -- which is among the most valuable of China's listed state-owned enterprises -- will be kicked off the Big Board after more than two decades, along with China Telecom Corp. and China Unicom Hong Kong Ltd.

The exchange's decision is unlikely to seriously harm the Chinese telecom giants in the near term. Mounting pressure from Washington has already stymied their ability to operate in the U.S., a country that makes up a negligible amount of their international business. The broader U.S. market impact of the delistings is likely to be limited, in part because large telecom companies haven't been a hot part of the market recently.”


The United Kingdom was able to secure a negotiated separation from the European Union near the very end of 2020. According to the BBC, “Boris Johnson said the UK had "freedom in our hands" and the ability to do things "differently and better" now that the long Brexit process was over. But opponents of leaving the EU maintain the country will be worse off.

Scottish First Minister Nicola Sturgeon, whose ambition it is to take an independent Scotland back into the EU, tweeted: "Scotland will be back soon, Europe. Keep the light on." BBC Europe editor Katya Adler said there was a sense of relief in Brussels that the Brexit process was over, "but there is regret still at Brexit itself".


Fixed Income

The Federal Open Market Committee (FOMC) held its last meeting of 2020 on December 15 – 16.  As stated in the minutes of that meeting, “Meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2020 to 2023... Each participant's projections were based on information available at the time of the meeting, together with her or his assessment of appropriate monetary policy … and assumptions about other factors likely to affect economic outcomes. Considerable uncertainty attends these projections, however.” It’s interesting to note that participants arrived at a projected median of +4.2% for the growth of real GDP in 2021, decreasing to +3.2% in 2022 and +2.4% in 2023. This suggests a return to “normal” once the economic effects of the pandemic have been reduced. 

10-Year Treasuries

In an article published December 28, the Wall Street Journal noted “Long-term Treasury yields seem poised to move up in the first half of 2021, but the Federal Reserve may set a limit on how high they can go. At 0.95%, the yield on the 10-year Treasury is up from the levels it plumbed earlier this year but is near a historic low. That reflects bond-market investors’ continued uncertainty about how strong the economy will be on the other side of the pandemic and whether higher inflation will take hold. It also reflects a promise from the Fed that it will keep its target range on overnight rates near zero until it sees evidence of a tight labor market and inflation has obviously cleared its 2% target rate, and that it will keep buying $80 billion in Treasury's and $40 billion in mortgage bonds each month until jobs and inflation have made ‘substantial further progress.’ “Investors’ hesitancy on the economy and inflation should ease as spring approaches, however. As more of the population gets vaccinated and warm weather returns, spending on services, in particular, will likely rebound. Inflation should pick up as well, in part because, starting in March, the year-ago inflation comparison will be with when the pandemic first hit, but also because rebounding demand will at least temporarily boost prices. As that occurs, belief in the Fed’s low-rate promise could start to wear thin. It is, after all, one thing for the central bank to say it will keep rates low when the country is still in the grips of a crisis and another when the crisis is receding. But Fed officials also might try to limit how much Treasury yields rise. Memories of the 2013 “taper tantrum,” when expectations the Fed was about to reduce its bond purchases pushed yields higher, stifling the recovery, are still fresh. Moreover, after a yearlong policy review, the Fed this summer concluded that it should allow for catch-up periods after inflation has been below its target—effectively saying that it should keep rates lower than it has in the past. Next year could see the Fed taking pains to remind investors of that change in stance. Still, the 10-year yield might need to be closer to 2% than 1% before the Fed starts complaining. The lowest long-term rates that investors will ever see might already have come and gone.”



Comex gold finished the year at $1,892 per ounce, down from its August 7, 2020 high of $2,067 per ounce, but up +$78 during December as gold bugs celebrated a nearly +30% YTD. West Texas Intermediate crude oil marked black gold’s final posting in 2020 at $48.52, a YTD decrease of nearly -23% but up +$3.97 per barrel over November’s close. A retail gallon of regular gasoline had a national average of $2.15.8, about +1 cent over Thanksgiving’s prices but about -35 cents less than New Year’s Eve, 2019.


U.S. Economy

GDP: The Bureau of Economic Analysis (BEA) issued the following statement on December 22: “Real gross domestic product (GDP) increased at an annual rate of 33.4 percent in the third quarter of 2020, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 31.4 percent. The “third” estimate of GDP released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 33.1 percent. The upward revision primarily reflected larger increases in personal consumption expenditures (PCE) and nonresidential fixed investment.”

As for the effect of COVID-19 on Q3 performance, “The increase in third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to COVID-19. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the third quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.”

Housing Sales

In a joint press release issued on December 23 from the U.S. Census Bureau and HUD, information about the sale of new homes was released for November 2020, the latest data available:

New Home Sales

Sales of new single-family houses in November 2020 were at a seasonally adjusted annual rate of 841,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent below the revised October rate of 945,000, but is 20.8 percent above the November 2019 estimate of 696,000.

Sales Price

The median sales price of new houses sold in November 2020 was $335,300. The average sales price was $390,100.

For Sale Inventory and Months’ Supply

The seasonally-adjusted estimate of new houses for sale at the end of November was 286,000. This represents a supply of 4.1 months at the current sales rate.” December’s government data will be released on January 28.

CNBC published an article on December 22 that discussed inventory and median pricing, stating that at the end of November there were 1.28 million homes available for sale, which is -22% less inventory than the year before, equal to a 2.3-month inventory at the current sales pace. This inventory is the thinnest since 1982 when the National Association of Realtors began tracking this information. Further, “the median price of an existing home sold in November was $310,800, a 14.6% increase compared with November 2019.” 


The latest information about industrial production and manufacturing comes from the Federal Reserve based on data from November. “Industrial production increased 0.4 percent in November. After having fallen 16.5 percent between February and April, the level of the index has risen to about 5 percent below its pre-pandemic (February) reading. In November, manufacturing output advanced 0.8 percent for its seventh consecutive monthly gain. An increase of 5.3 percent for motor vehicles and parts contributed significantly to the gain in factory production; excluding motor vehicles and parts, manufacturing output moved up 0.4 percent. The output of utilities declined 4.3 percent, as warmer-than-usual temperatures reduced the demand for heating. Mining production increased 2.3 percent after decreasing 0.7 percent in October. At 104.0 percent of its 2012 average, total industrial production was 5.5 percent lower in November than it was a year earlier. Capacity utilization for the industrial sector increased 0.3 percentage point in November to 73.3 percent, a rate that is 6.5 percentage points below its long-run (1972–2019) average but 9.1 percentage points above its low in April.” Manufacturing capacity utilization rose +0.8% during November which is a positive indicator, but capacity utilization remains -3.8% below pre-pandemic readings.


Using data from the U.S. Census Bureau, Trading Economics reported that U.S. exports had a monthly increase in October 2020 of +$4.0 billion to $182.0 billion during October, the highest total since March when the pandemic began in the United States. Exported goods were notable in industrial supplies and materials such as natural gas and organic chemicals, as well as capital goods that showed a predilection for civilian aircraft engines and semiconductors. Services exports were led by travel and transport.



The Census Bureau reported that U.S. spending on imports also increased during October, rising +$5.0 billion over September to $245.1 billion. This is the highest level since February. Purchased goods increased +$4.3 billion to $207.8 billion “led by imports of consumer goods such as cell phones and other household goods; capital goods, of which computer accessories and other industrial machinery; industrial supplies and materials on the back of nonmonetary gold and crude oil; and automotive vehicles, parts, and engines. Imports of services increased by $0.7 billion to $37.4 billion, boosted by travel and transport.”

Retail Sales

In a report issued on December 16, the U.S. Census Bureau noted the following about November retail sales. “Advance estimates of U.S. retail and food services sales for November 2020 were $546.5 billion, a decrease of 1.1 percent from the previous month, but 4.1 percent above November 2019. Total sales for September 2020 through November 2020 period were up 5.2 percent from the same period a year ago. The September 2020 to October 2020 percent change was revised from +0.3 percent to down 0.1 percent. Retail trade sales were down 0.8 percent from October 2020, but 7.1 percent above last year. Nonstore retailers were up 29.2 percent from November 2019, while food services and drinking places were down 17.2 percent from last year.”

Producer Price Index (PPI): This is a leading economic indicator because the data provides information about the potential rate of inflation by measuring the prices producers are paying to produce their goods and services. The Bureau of Labor Statistics reported “the Producer Price Index for final demand advanced +0.1 percent in November after a +0.3 percent increase in October and +0.4 percent in September. The final demand index increased +0.8 percent for the 12 months ended in November, the largest advance since moving up +1.1 percent for the 12 months ended in February.”

Consumer Price Index (CPI)

Similarly, the CPI is also a leading economic indicator, in this case measuring the prices consumers are paying for the goods and services created by producers. The Bureau of Labor Statistics reported that “in November, the Consumer Price Index for All Urban Consumers rose +0.2 percent on a seasonally adjusted basis. The index for all items less food and energy rose +0.2 percent in November; up +1.6 percent over the year.”


The U.S. Department of Labor issued a news release on December 31, 2020, that provided the following unemployment insurance weekly claims information: “In the week ending December 26, the advance figure for seasonally adjusted initial claims was 787,000, a decrease of 19,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 803,000 to 806,000. The 4-week moving average was 836,750, an increase of 17,750 from the previous week's revised average. The previous week's average was revised up by 750 from 818,250 to 819,000. The advance seasonally adjusted insured unemployment rate was 3.6 percent for the week ending December 19, unchanged from the previous week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 19 was 5,219,000, a decrease of 103,000 from the previous week's revised level. The previous week's level was revised down by 15,000 from 5,337,000 to 5,322,000. The 4-week moving average was 5,457,250, a decrease of 77,000 from the previous week's revised average. The previous week's average was revised down by 3,750 from 5,538,000 to 5,534,250.”

Consumer Sentiment

In their monthly report on December 22, the Consumer Confidence Conference Board stated: “The Conference Board Consumer Confidence Index® declined in December, after decreasing in November. The Index now stands at 88.6 (1985=100), down from 92.9 in November. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – decreased sharply from 105.9 to 90.3. However, the Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – increased from 84.3 in November to 87.5 this month. The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was December 14. Consumers’ assessment of current conditions deteriorated sharply in December, as the resurgence of COVID-19 remains a drag on confidence,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “As a result, consumers’ vacation intentions, which had notably improved in October, have retreated. On the flip side, as consumers continue to hunker down at home, intentions to purchase appliances have risen. Overall, it appears that growth has weakened further in Q4, and consumers do not foresee the economy gaining any significant momentum in early 2021.”

Interesting News

Interesting News: In its December 8 publication, The Economist presented the idea that once the pandemic crisis is over, a “productivity boom” could develop. Because COVID-19 forced businesses to more seriously consider, develop and use remote location workstations and promoted technological advances in the workplace, many inefficiencies have been eliminated resulting in the potential of establishing a teleworking environment for good. “Office closures have forced firms to invest in digitization and automation or to make better use of existing investments. Old analog habits could no longer be tolerated. Not all of these efforts will have led to productivity improvements … but the firms which did transform their activities will retain and build on their new ways of doing things.”

Final Reflections

There is general relief that 2020 is over and the pandemic that occupied over 80% of the year will soon be controlled as the population is vaccinated. There will also be a resolution to the two Georgia senatorial runoff elections and a transition in the White House. Once businesses reopen and people return to work, there is confidence the economy will recover.


Joseph Maas

Information contained herein is based on data obtained from sources believed to be reliable, however, such information has not been verified by Carlton Financial Group, LLC d/b/a Carlton Wealth or Synergy Financial Management, LLC. The information provided has been prepared and distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy or an offer of advisory services.

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