As countries roll out the coronavirus vaccines, I expect the stock market will keep breaking new records at least till early next year. Rotation of investment from tech companies to Dow components and small-mid size companies will continue, a healthy sign that investors are returning to values and fundamentals.
New jobs added to the U. S. economy hit some bumps in November with less than half of that number in October. The bad news in employment is good news for people pushing for more fiscal stimulus. It is expected the government will soon pass a package in a range of one trillion dollars to bridge between now and when the new U. S. administration is in place. There will be more fiscal packages to come next year.
The FOMC will meet in the middle of December and I think they will repeat the promise to purchase bond and mortgage backed securities at $120B per month and to keep interest rate low at current level for very long period of time (at least till end of 2023). The Fed will again call for government fiscal support. It is more convenient and effective to do so now than before because the former Fed chair Janet Yellen will become the Treasury Secretary.
The U. S. 10-year yields have moved up near 1%, suggesting investors are more confident the long term economic prospects as the coronavirus pandemic subsidies. Oil and other commodities prices have recovered some ground. Though inflation will be in check, I think there will be a high inflation transition some time next year if the vaccines are effective to get the pandemic under control. Again it will be transitory as people rush to return to normalcy of life and yes, many of them have a lot of cash in their bank accounts. It was reported that cash deposits in the U. S. banks have increased by one trillion dollars this year.
Stocks wise, banks and other financial institutions are relatively cheaper. I also like some of the Dow companies that have beaten down due to the economy closure.