Presented by Mark Gallagher

General Market News
• Last week saw a moderate steepening of the yield curve as lawmakers moved closer to a potential stimulus package and the Moderna vaccine was approved. The 10-year Treasury yield opened the week at 0.93 percent and closed just shy of 0.95 percent. This morning, it opened just below 0.90 percent, down 3 basis points (bps) from last week’s open. The 30-year opened this morning at 1.64 percent, a loss of 3 bps from last week’s open of 1.67 percent. On the shorter end of the curve, we saw a sizable move as the 2-year opened last week at 0.121 percent and rose one-fifth of a basis point to 0.123 percent this morning. The bond market signals investors were cautiously optimistic heading into the weekend.
• All three major U.S. indices were up last week, with the Nasdaq leading the way, rising more than 3 percent. Investors sought out large-cap and technology-oriented stocks as case counts continued to rise, particularly in California. The market appeared to have taken a pause from the reopening rally on the large-cap side. Small-cap stocks performed roughly in line with their Nasdaq counterparts, as additional aid is expected with the impending stimulus package. Top-performing sectors last week were technology, consumer discretionary, and materials. Underperforming sectors were energy, communication services, and industrials.
• On Wednesday, the November retail sales report was released. Headline sales came in below expectations, declining by 1.1 percent against forecasts for a 0.3 percent decline. October’s report was also downwardly revised to a 0.1 percent decline. This is the first time since March and April we have seen retail sales decline in consecutive months. Core retail sales, which strip out the impact of volatile auto and gas sales, fell by 0.8 percent during the month against calls for a 0.1 percent increase. October’s core retail sales report was also downwardly revised to show a decline of 0.1 percent. This is a concerning outcome for sales and the overall economic recovery, as consumer spending accounts for the majority of economic activity in the country. Unfortunately, it appears the worsening public health situation and the delay in passing additional federal stimulus have taken an increasing toll on the economic recovery.
• Wednesday saw the release of the National Association of Home Builders Housing Market Index for December. This measure of home builder confidence fell from 90 in November to 86 in December, against calls for a more modest decline to 88. Despite the larger-than-expected decline, the index still sits at its second-highest level on record, highlighting the continued strength of the housing market. Home builder confidence has risen notably since reaching a lockdown-induced low of 30 in April, driven by record-low mortgage rates that have spurred additional prospective homebuyers into the market. The supply of homes available for sale also remains near record lows, another tailwind for home builder confidence.
• The third major release on Wednesday was the Federal Open Market Committee rate decision from the Federal Reserve’s (Fed’s) December meeting. As expected, the Fed did not change the federal funds rate, which was lowered to virtually 0 in March to support a faster economic recovery. The major focus from this meeting was a change in the language for the Fed’s current bond buying program. The Fed reemphasized its commitment to the current purchases of at least $120 billion in assets per month until “substantial further progress” is made on the central bank’s unemployment and inflation goals. This was widely seen as a dovish move meant to support markets and the economy over the short to intermediate term. In a news conference, Fed Chair Jerome Powell doubled down on the continued support for ongoing asset purchases, with the head of the central bank indicating the Fed is ready to do more to support the economic recovery, as needed.
• On Thursday, November’s building permits and housing starts reports were released. Both measures of new home construction showed faster growth than expected, with starts rising by 1.2 percent against forecasts for 0.3 percent growth, while permits increased by 6.2 percent against calls for a 1 percent rise. These strong results brought the pace of permits to its highest level since 2006, while starts remain well above levels seen throughout most of 2019. The pace of single-family housing starts hit a 13-year high in November, driven by shifting consumer preference toward single-family housing. Given the record level of home builder confidence we saw in November, it’s not surprising the pace of new home construction continued to improve during the month; nonetheless, it was an encouraging reminder that the housing market remained healthy despite November’s worsening public health picture.

Source: Bloomberg, as of December 18, 2020

Source: Morningstar Direct, as of December 18, 2020

What to Look Forward To
On Tuesday, the Conference Board Consumer Confidence Index for December will be released. This widely monitored gauge of consumer sentiment is expected to increase from 96.1 in November to 97.8 in December, which would mark a rebound. The index would, however, sit at a lower level than the post-lockdown high of 101.4 in October. Historically, improving consumer confidence has supported faster spending growth, so any improvement to end the year would certainly be a welcome sign. With that said, the index is expected to remain well below this year’s high-water mark of 132.6, set in February. We have a long way to go to get consumer confidence back to pre-pandemic levels.

Tuesday will also see the release of the November existing home sales report. Sales of existing homes are expected to fall by 2.2 percent during the month, following a surprise 4.3 percent increase in October. October’s result brought the pace of existing home sales to its highest level since 2005, so the anticipated decline in November is not a major concern. Existing home sales account for the majority of home sales and, since initial lockdowns were lifted, the pace of sales has increased notably. On a year-over-year basis, existing home sales are expected to show a 25.9 percent increase. Looking forward, low supply and rising prices may serve as a headwind to faster housing sales growth. Still, record-low mortgage rates and high levels of home buyer demand are expected to keep the overall pace of sales high for the time being.

On Wednesday, the preliminary estimate of November’s durable goods orders report is set to be released. Durable goods orders are expected to rise by 0.6 percent during the month, following a 1.3 percent increase in October. Core durable goods orders, which strip out the impact of volatile transportation orders, are expected to rise by 0.5 percent, following a 1.3 percent increase in October. Core durable goods orders are often viewed as a proxy for business investment. Since initial lockdowns ended, we have seen a solid recovery in core orders that surpasses pre-pandemic levels. Business confidence and spending have largely remained resilient through this third wave of infections. A positive result for durable goods orders would be another sign that the business recovery has continued, despite the headwinds created by the pandemic.

The initial jobless claims report for the week ending December 19 will also be released on Wednesday. Economists expect to see a decline in initial claims during the week, with forecasts calling for a drop from 885,000 claims to 863,000. If estimates prove accurate, the result would be a modest improvement from the week before, but the pace of lost jobs would continue at a concerning rate. Given the rise in initial claims this month and the slow pace of hiring in November, it is quite possible we could see a net loss of jobs during December. That result would mark the first net negative month for jobs since initial lockdowns ended in April. Ultimately, to achieve a full economic recovery, we will need to do a much better job of getting people back to work. This weekly release gives us a relatively up-to-date look at the health of the job market, so it will continue to be widely monitored.

Wednesday will also see the release of the November personal spending and personal income reports. Spending is expected to decline by 0.1 percent during the month, down from a 0.5 percent increase in October. If estimates hold, the result would mark the first month with declining spending since April. This decline would echo the drop in November’s retail sales report. Personal income is expected to show a 0.3 percent decline during the month, marking two consecutive months with declining income. Income growth has been very volatile on a month-to-month basis due to shifting government stimulus and unemployment payments. The decline in personal income is expected, due in large part to expiring emergency unemployment payments. We can hope that a second round of federal stimulus payments will support income growth, but the next round of payments is likely to come in early 2021. In the meantime, we may see further declines in income in December given the continued stress on the labor market.

The fourth major data release on Wednesday will be the release of the second and final estimate for the University of Michigan consumer sentiment index for December. The initial estimate showed a surprise increase for the index, from 76.9 in November to 81.4 to start December. Economists expect to see the index fall to 80.9 at month-end. While an intramonth decline would be slightly disappointing, it would leave the index near the post-lockdown high of 81.8 set in October. In addition, the index would remain well above the low of 71.8 it hit in April, suggesting that consumers are reacting to the third wave of infections with more resilience than earlier in the year.

Finally, we will finish the week with Wednesday’s release of the new home sales report for November. New home sales are expected to decline by 0.9 percent during the month, following a 0.3 percent drop in October. Despite the anticipated decline, the pace of new home sales would remain near its highest level since 2006. New home sales are a smaller and often more volatile component of total sales compared with existing home sales, but this segment has rebounded notably since initial lockdowns ended. On a year-over-year basis, new home sales are expected to grow by 42.2 percent in November. As with existing home sales, low supply and high prices may serve as a headwind to faster sales growth going forward. Still, continued sales near current levels would highlight the strength of the housing market and be a positive sign for overall economic growth.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.
Authored by the Investment Research team at Commonwealth Financial Network.

© 2020 Commonwealth Financial Network®

Presented by Mark Gallagher

General Market News
• Last week saw a moderate flattening of the yield curve in response to potential stimulus talks, vaccine approval news, and the latest jobs report. The 10-year Treasury yield opened last week near 0.97 percent and ended the week just below 0.89 percent. It opened higher this morning, just shy of 0.92 percent. The 30-year opened this morning at 1.66 percent, a loss of 8 basis points (bps) from last week’s open at 1.74 percent. On the shorter end of the curve, we saw a sizable move as the 2-year opened last week at 0.16 percent and dropped 3 bps to 0.13 percent this morning.
• All three major U.S. indices were down modestly last week. Domestic equity markets were affected by concerns about a government shutdown, continuous stimulus discussions, and rising coronavirus case counts. This news did not temper the market debuts of DoorDash and Airbnb, which rose 72 percent and 108 percent, respectively. (The significant bounces in recent initial public offerings has reminded some of the early 2000s and led to discussions of pockets of market frothiness.) Disney also had a strong week, up 14 percent, with its streaming platform exceeding 87 million subscribers. Top-performing sectors were energy, telecom, and consumer staples. Underperforming sectors were real estate, financials, and technology.
• On Thursday, the Consumer Price Index for November was released. Producer prices rose by 0.2 percent during the month, which was slightly higher than economist estimates for 0.1 percent growth. On a year-over-year basis, consumer prices grew by 1.2 percent, which matched October’s year-over-year growth rate. Core consumer prices, which strip out the impact of volatile food and energy prices, also rose by 0.2 percent against calls for a more modest 0.1 percent increase. On a year-over-year basis, core consumer inflation came in at 1.6 percent, which was in line with October but slightly above estimates for 1.5 percent. November saw an uptick in prices for various goods and services that suffered from deflationary forces due to the pandemic, namely airline fares, auto insurance, and clothing. These categories all remain well below pre-pandemic levels in terms of prices, so there is still room to run for further modest price increases in the upcoming months.
• On Friday, the Producer Price Index report for November was released. Producer prices rose by 0.1 percent during the month, which was in line with expectations. On a year-over-year basis, producer inflation climbed 0.8 percent against calls for 0.7 percent. Core producer inflation, which strips out the impact of volatile food and energy prices, rose by 0.1 percent during the month and 1.4 percent on a year-over-year basis, which was slightly below the 0.2 percent and 1.5 percent inflation rates expected for the month and year, respectively. The slower-than-expected increase in core prices is a sign that the moderate inflationary pressure producers saw over the summer has largely subsided. Both consumer and producer inflation remain well below the Federal Reserve’s (Fed’s) stated 2 percent inflation target, driven in large part by the deflationary pressure created by the pandemic.
• Friday saw the release of the preliminary estimate of the University of Michigan consumer sentiment survey for December. This widely followed measure of consumer confidence rose from 76.9 in November to 81.4 in December against forecasts for a decline to 76. This result was driven by improvements in consumer views on both the present economic conditions as well as the future expectations. The report showed a large partisan split, with Democrats expressing a surge in optimism for both current conditions and future expectations while Republicans have seen a sharp drop in future expectations since the election. This marks the second-highest level for the index since initial lockdowns were lifted back in May, trailing only the 81.8 mark the index hit in October. Overall, this was an encouraging report, as improving consumer confidence has historically supported faster consumer spending growth. Given the partisan shift in responses, however, this tailwind may be more muted than normal.

Source: Bloomberg, as of December 11, 2020

Source: Morningstar Direct, as of December 11, 2020

What to Look Forward To
We’ll start the week with Tuesday’s release of the November industrial production report. Economists expect to see production increase by 0.3 percent during the month, down from a 1.1 percent gain in October. Some of this projected growth can be attributed to an anticipated increase in mining production, which in turn was likely supported by rising oil prices. Manufacturing output is also expected to show growth during the month. Economists are forecasting a 0.2 percent increase in output, down from the 1 percent rise in October. If estimates hold, this report would mark seven consecutive months with increased manufacturing output. The recovery for manufacturing activity has been slower than the recovery for consumers, however, and total output would remain below pre-pandemic levels. Ultimately, this report is expected to show continued modest improvement for industrial production and manufacturing in November. This would be a positive sign that recovery continued during the month, albeit at a slower pace than in October.

On Wednesday, the November retail sales report is set to be released. Economists expect to see sales fall by 0.2 percent during the month, following a 0.3 percent increase in October. If estimates hold, this report would mark the first month with declining sales since April. Core retail sales, which strip out the impact of volatile auto and gas sales, are set to show solid 0.3 percent growth in November. This result would be a step up from the 0.2 percent core sales growth we saw in October. Going forward, steady core retail sales growth at these levels would be a positive development, as retail sales have already rebounded past pre-pandemic levels. With that being said, high-frequency consumer spending data signals there may be a slowdown in spending on the horizon, driven by newly imposed lockdowns and changing consumer habits due to the worsening public health situation. Given the importance of consumer spending for the overall economy, this release will be widely monitored. It will give us an idea of just how resilient consumer spending was in November.

Wednesday will also see the release of the National Association of Home Builders Housing Market Index for December. This measure of home builder confidence is expected to fall from a record high of 90 in November to 88 in December. If estimates hold, this reading would represent the second-highest mark for the index since its inception in 1985, so a modest decline would be nothing to worry about. Home builder confidence has shown a very impressive rebound since hitting a lockdown-induced low of 30 in April. This rebound has been largely driven by record low mortgage rates that have drawn prospective home buyers into the market in droves since initial lockdowns ended. In addition, the supply of homes available for sale remains near historic lows. This fact has driven prices up and given home builders confidence that newly built units will sell quickly.

The third major release on Wednesday will be the release of the Federal Open Market Committee (FOMC) rate decision from the Fed’s December meeting. Economists do not expect the Fed to make any changes to the federal funds rate, which was lowered to virtually zero in March to combat the pandemic’s economic impact. Economists will closely monitor this meeting. It’s possible the Fed will announce forward guidance for future asset purchases, which would be seen as a supportive move for markets and the economy. Given rising COVID-19 case counts since the Fed met at the start of November, the news release from the meeting will be widely monitored, as will Fed Chair Jerome Powell’s news conference.

On Thursday, the initial jobless claims report for the week ending December 12 is set to be released. Economists expect to see 820,000 initial unemployment claims filed during the week. This would be an improvement from the 853,000 initial claims filed the week before but an increase from the post-lockdown low of 711,000 initial claims set the week ending November 6. If estimates hold, the result would signal that rising case counts and the associated measures taken by states to combat the spread of the coronavirus have increased pressure on the labor market in December. If we continue to see initial claims at these levels during the month, a net loss of jobs in December could result. That would highlight the threat that the worsening public health picture represents for the economic recovery in the short to medium term. Given the high level of initial unemployment claims, this report will continue to be closely monitored. It should be noted, however, that jobless claims have a high level of week-to-week volatility. As such, it’s important to not read too much into large weekly swings.

We’ll finish the week with Thursday’s release of the November building permits and housing starts reports. Economists expect mixed results from these two measures of new home construction. Permits are set to rise by 0.7 percent and starts are expected to fall by 0.3 percent. Despite the anticipated decline for starts, the pace of new home construction has rebounded swiftly since lockdowns ended. It now sits well above levels seen throughout most of 2019. Construction of single-family homes has been a highlight, given that the pace of single-family housing starts hit a 13-year high in October, driven by changing consumer preferences due to the pandemic and a lack of supply. The signs of this strong pace of construction could carry over into 2021. The number of projects permitted but not yet started remains near its highest level since October 2008. If estimates hold, these reports would showcase the continued strength of the housing market. This sector has been one of the bright spots in the overall economic recovery since initial lockdowns were lifted earlier in the year.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2020 Commonwealth Financial Network®

Presented by Mark Gallagher

Vaccine news boosts markets in November
November was a strong month for markets, as news about developmental vaccines for the coronavirus caused markets to surge. The S&P 500 gained 10.95 percent in November, and the Nasdaq Composite rose by 11.91 percent. The Dow Jones Industrial Average led the way with a 12.14 percent gain. These strong results brought the three indices to all-time highs.

These market gains were accompanied by improving fundamentals. According to Bloomberg Intelligence, as of November 24 with 97 percent of companies having reported results, the blended third-quarter earnings decline for the S&P 500 sits at 7.3 percent. This is notably better than analyst estimates at the start of earnings season for a 21.5 percent drop during the quarter. Roughly 85 percent of companies are beating expectations.

Technical factors were also supportive for markets during the month. The three major indices remained well above their respective 200-day moving averages in November, marking five straight months where all three indices finished the month above trend. The 200-day moving average is a widely followed technical indicator, as sustained breaks above or below this level tend to signal shifting investor sentiment. The continued technical support for equity markets since reopening efforts took hold indicates that investors remain confident in U.S. companies and their ability to withstand the pandemic.

The story was much the same internationally. Positive vaccine news pushed global equity markets higher during the month. The MSCI EAFE Index gained an impressive 15.50 percent in November, which caused the index to pass pre-pandemic levels for the first time. Emerging market investors also celebrated the vaccine news, with the MSCI Emerging Markets Index gaining a strong 9.25 percent. Both of these indices finished the month above their respective 200-day moving averages, indicating solid technical support. This was a welcome rebound for the MSCI EAFE Index, which ended October below its 200-day moving average.

Fixed income also had a positive month, supported by falling interest rates. The 10-year Treasury yield fell from 0.88 percent at the end of October to 0.84 percent at the end of November. The Bloomberg Barclays U.S. Aggregate Bond Index gained 0.98 percent during the month. High-yield bonds, which are typically less tied to movements in rates, also had a positive month. The Bloomberg Barclays U.S. Corporate High Yield Index returned 3.96 percent in November. High-yield spreads narrowed to their lowest level since February, indicating that investors’ tolerance for higher-yielding, riskier securities rose during the month. This makes sense, given the rally in equity markets we saw in November.

Medical risks remain, but signs for hope emerge
November was a mixed bag on the public health front, yet there are reasons for optimism looking forward. COVID-19 case counts continued to rise, but the pace of case growth slowed near month-end, which could mean we’ll see a peak in case growth in December. Although we are far from out of the woods with this third wave of infections, the slowdown in growth indicates that current containment efforts may be having a positive effect.

We saw continued growth in daily testing throughout November. The positive test rate started to decline by month-end, showing we are doing a better job of identifying and addressing new infections. The positive test rate is still above the WHO’s recommended 5 percent level, but we are now moving in the right direction after two months with a rising rate. It takes time to contain new outbreaks, but the developments in November indicate we may be making progress in dealing with this third wave.

With that being said, there are still very real risks on the medical front. The potential for an increased infection rate following the Thanksgiving holiday is a primary concern. We will have to wait and see if there is a large uptick in cases in the weeks to come, so case counts in December will continue to be closely monitored. Ultimately, between the slowing case growth, improvements in testing, and vaccine news, November was largely a positive month for public health.

Economic recovery continues at slower pace
The economy continued to grow in November, but there were signs that rising case counts served as a headwind for faster growth during the month. Consumer spending, which has been one of the bright spots in the economic recovery, showed continued growth. October’s retail sales and personal spending reports, however, marked their lowest monthly growth levels since lockdowns were lifted. There were also signs of a slowdown in spending growth in the higher-frequency consumer spending data.

Consumer confidence was a concern as well, with both major measures of consumer confidence falling by more than expected in November. One of the factors that likely led to this decline was rising stress on the job market. We saw initial jobless claims tick up for two consecutive weeks for the first time since July. This highlights the negative effect rising case counts had on the recovery during the month.

Business spending and confidence figures pointed to continued growth. Both manufacturer and service sector confidence remained near or above pre-pandemic levels, indicating that businesses remain resilient despite rising case counts. This high level of confidence translated into faster business spending, with the durable goods orders report for October coming in above expectations. Core durable goods orders, which strip out the impact of volatile transportation orders, were especially impressive. They rose by 1.3 percent during the month against forecasts for more modest 0.5 percent growth. Core durable goods orders are often used as a proxy for business investment. As you can see in Figure 1, core orders have rebounded well past pre-pandemic levels. Business investment was a positive contributor to gross domestic product growth in the third quarter. This strong start to the fourth quarter is a positive sign for economic growth as we finish out the year.

Figure 1. Core Durable Goods Orders, November 2010–Present

Risks remain . . .
As we saw in November, medical concerns still present a risk to the continued economic recovery. While markets cheered about the vaccine news, it will likely be well into 2021 before vaccines are available for all. In the meantime, setbacks on the public health front could spur further volatility. Coronavirus cases are still rising and could lead to further drops in consumer confidence and spending in December.

Political risks also remain, despite the conclusion of the November elections. Although there is hope for another round of federal stimulus early in 2021, it is likely we will head into the new year with a divided federal government, which could lead to a lower or slower stimulus than expected. There are also international concerns, as U.S.-China trade relations are strained and a no-deal Brexit at year-end seems likely.

. . . But the recovery continues
Despite the risks, both the economy and markets remain resilient. We will get the pandemic under control, and vaccines will accelerate that process. While the economy may have slowed, it’s still growing and has surpassed pre-pandemic levels in some areas. Strong earnings results are a sign that companies are adapting. The continued market rally says investors think things will get better—but volatility is always a possibility. A well-diversified portfolio that matches investor goals and timelines remains the best path forward for most. If concerns remain, however, contact your financial advisor to review your financial plans and goals.

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, senior investment research analyst, at Commonwealth Financial Network®.

© 2020 Commonwealth Financial Network®