The market fell last week as concerns grew over COVID deaths and a lack of progress in the stimulus negotiations. Employment data presented another worry after coming out with one of the worst weekly readings since April. Find all of this plus more on the historical divergence forming in two categories of the Consumer Price Index in this weeks @KonvergentWP Market Update Blog.

Here are the top three things we’re covering this week’s blog:

The Market

The S&P was down -0.96% on the week as near-term concerns finally caught up with the excitement for 2021. The primary reason for the volatility this last week appeared to be related to the lack of progress on a stimulus deal.  The market started the week on a positive note but then fell between Wednesday and Friday as headlines continued to reveal that the sides were still far apart on a short term plan to support those struggling the most from the pandemic shutdown of the economy.  Timing is getting very critical as many of the programs from the CARES act expire on 12/31, leaving many renters and landlords in a bit of a lurch on what to do for those that have been unable to keep up on rent payments in recent months.

Economic Data

New claims increased substantially last week to 853,000. This jump of 137,000 brought claims to the highest level since early October. Not only does this spike break the encouraging employment trend, but it also demonstrates the concerning effect of COVID shutdowns. More concerns came in the 139,000 increase in pandemic unemployment, which brought the total for new claims to 1.28 million. This reading was well above the previous week and provided clear evidence of an ailing economy.

Continuing claims increased last week to 5.757 million. This jump brought an end to the ten-week streak of lowering continuing claims. With these claims on a one-week delay, we will be watching closely to see if the increase in new claims has a corresponding effect on continuing claims.

Total Claims for Unemployment from all programs came in at 19.043 million. This represented a drop of 1.12 million over the previous week. Interestingly, total unemployment fell in every category, which comes as a bright spot in an otherwise concerning employment report. However, it is important to note that total claims come at a two-week delay. If the other unemployment claims continue to rise an increase in total unemployment could be expected as well.

 Consumer Price Index

Thursdays release of the Consumer Price Index showed an extended divergence between goods and services in U.S. cities. The implication of this matches what you are likely experiencing – your grocery bill has probably gone up and prices for every day items have been increasing.  On the other side, a lot of services have been impaired by the localized shutdowns from travel to restaurants to gyms and may be needing to offer lower prices to entice customers to continue showing up.  If we do get additional stimulus soon, and then additional stimulus into 2021, and that leads to a massive increase in service spending from pent up demand to go along with the increase in the prices of durable goods, we could see a rise in overall inflation in 2021.

Interestingly, this divergence has bucked the longer-term trend. The chart below illustrates the longer-term CPI outlook. Since the Great Recession in 2008 service growth has clearly outperformed. With a mass of vaccines on the horizon the service industry is likely to experience somewhat of a snapback as consumers begin to act on their pent up desires outside of the home.

Articles of Interest

Stimulus Update – Another week of stimulus negotiation, another week of no deal. Even with the significant drop in Democrat target package size, Congress continues to hit a dead end. Check out this article for insight into the specific issues causing leaders from both parties to delay.

Vaccine Rollout – Vaccine urgency continues to grow with COVID consistently killing nearly 3,000 people every day. This devastating milestone has caused the White House to apply extreme pressure on the FDA to authorize the Pfizer and Moderna vaccines. Check out this article for additional information on the FDA approval status.

Santa Rally Bubble – With many portfolio managers taking vacations during the month of December, stocks have notoriously experienced sweet gains on low volume during the last few weeks of the year. But as we all know 2020 has been very different than previous years. Check out this article for a glimpse into the concerning factors driving this year’s Santa Rally to never before seen valuations.

Social Media Post of the Week

Check out the second installment in the Advance Your Wealth series! This week we covered five common homeowner mistakes and the most effective solutions.

Don’t forget to follow us on your favorite Social Media Feeds!!

Non-Financial Story of the Week

Before we jump into the data, I hope you had a great weekend!  In case you missed it live, we did the 2nd episode of Advance Your Wealth on Friday morning on the 5 Big Mistakes Homeowners make with their home and auto insurance.  We will be putting out the full video and more information on that if you want to re-watch it later this week!

Bottom Line

After two strong weeks of gains, the market finally experienced a slight correction this week. With the rise in unemployment due to rising economic shutdowns, there is still a reasonably amount of short term economic risk to be concerned about.  However, when looking ahead, there seems to be a few reasons that could drive the market higher.  Between expected new stimulus, the approval and rollout of vaccines, and much easier comparable economic data in the first half of 2021 vs 2020, there could continue to be a lot of support for rising prices with bouts of volatility.

If you have any questions about any of the information in this week’s blog or what you should be doing right now with your personal and business planning, do not hesitate to reach out to us by sending an email to info@konvergentwealth.com or calling us at 253-236-7000.

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