Before the Bell: Wall Street will shortly start a new year following an up-and-down 2020. In all, the just-concluded 12 months saw a high-single-digit advance by the Dow Jones Industrial Average, a low double-digit gain by the S&P 500 Index, a stellar increase of better than 43% by the tech-heavy NASDAQ. This was a remarkable performance given the challenges stemming from the unchecked ravages of COVID-19 and the sharp reversals suffered by the economy. As to the day ahead, the early read on the equity futures is for a strong start to the trading day, as equity investors apparently are intent on extending the late-2020 rally into 2021.
Regarding the week ahead, we will be getting figures on the manufacturing sector tomorrow when the Institute for Supply Management weighs in with its look at the industrial side of the economy. That will be followed Thursday by a pivotal metric on the services sector when the same ISM reports on nonmanufacturing activity across the United States.
Also of note this week will be the latest data on the trade balance, the minutes from the last Federal Open Market Committee, factory orders, a look at private sector employment tomorrow from ADP (ADP), and finally on Friday the release of the monthly employment report from the Labor Department. These issuances will provide a critical look at the U.S. economy in December when the coronavirus was breaking records for infections, hospitalizations, and deaths.
As for the stock market, it turned in a strong fourth quarter, with the bulls regrouping after a poor October. The quarter's largest gains were tabulated in November when optimism on vaccines to treat this pandemic more than offset worries about the escalating incidence of this disease and its impact on the economy. December would see those advances extended so that the averages closed the quarter and year at all-time highs.
Now, 2021 begins with new challenges and some old ones. With regard to the latter, we still face the coronavirus and its tragic costs as well as a foundering economy. As for new challenges, we will have a new Administration in Washington with its own set of ideas on the economy, taxation, regulations, and how we will go about fighting this pandemic. It should be an interesting next few months for investors.
Finally, the stock market begins the year with valuations extended and the risks of a reversal on disappointing news certainly present. Overall, though, our sense is that the bull market can be sustain in 2022, but the margin for error will be small. – Harvey S. Katz, CFA