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Week in Review: December 25, 2020

Recap & Commentary

With the exception of small-cap stocks, markets ended the week lower, as investors first cheered the news that Congress had passed a second coronavirus relief bill, before worrying about its fate after President Trump declined to immediately sign it, arguing that direct payments to individuals should be increased from $600/person, to $2,000/person. On Sunday evening, Trump finally signed the bill into law. With its passage, ~$300B will be made available to small business through renewed funding for the Paycheck Protection Program (PPP), and enhanced unemployment benefits for millions will be extended, along with the federal moratorium on evictions. The President also signed a $1.4T spending bill funding the government through the end of its fiscal year in September.

Across “the pond”, the UK and EU finally agreed to an elusive Brexit deal. The timing was good as the transition period for the UK to leave EU expires on December 31. Failure to secure a deal would have resulted in significant economic disruptions to the UK and, to a lesser extent, the EU. Under the terms of the deal, there will be no tariffs or quotas on goods and there will be no hard border between the Republic of Ireland and Northern Ireland. UK citizens will no longer have the right to work, live, or study in the EU without a visa.

Economic Bullet Points

A busy week for economic data left the impression that the economic rebound experienced in the third quarter is running out of steam. Most notably, consumer confidence along with personal income and spending all came in weaker-than-expected. Even housing, which has experienced incredible growth in 2020, showed signs of slowing in November.

Consumer spending fell 0.4% in November, the first decline since April.  Renewed restrictions to stem surging coronavirus cases likely played a role.  So too did declining incomes, which fell for the third time in the past four months.  With various government relief programs expiring, uncertainty as to when additional stimulus might be passed, and coronavirus cases surging, consumers appear to be taking a more cautious approach. That appeared to be corroborated by consumer confidence which defied expectations by falling, not rising, in December to it lowest level since August.

New home sales fell 11% in November. However, compared to a year ago, starts were up nearly 21%. Housing data is notoriously volatile, making longer-term trends more relevant than any single data point.  Existing home sales fell 2.5%, the first decline in five months. Reflecting the strength of the housing market in 2020, the inventory of existing homes for sale fell to 1.28M, marking the lowest level since records began in 1982.

Inflation as measured by the Fed’s preferred gauge, core PCE, was flat in November, and up just 1.4% Y/Y.  At current levels, inflation remains a non-factor in the Fed’s monetary policy calculus.

Weekly jobless claims fell nearly 90k to 803k. Continuing claims also improved, falling from 5.51M to 5.34M.

Of Note

On behalf of all of us at First Western, we thank you for your business and wish you a happy, healthy and prosperous new year.

Market Indices Week of 12/25

S&P 500-0.2%
Small Caps1.7%
Intl. Developed-0.7%
Intl. Emerging-1.0%
Commodities-0.4%
U.S. Bond Market0.1%
10-Year Treas. Yield0.93%
US Dollar0.4%
WTI Oil ($/bl)$48
Gold ($/oz)$1,883

The Week Ahead

  • Pending Home Sales
  • Chicago PMI

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