For the moment at least, the big picture continues to be positive. On the medical front, all three major data series—new cases, positive testing rates, and hospitalizations—have continued to trend down, while vaccinations continue to scale up. If current trends continue, we are through the worst of the pandemic and should see continued improvement.

Another day, another crisis. On top of the bubble worries and the market pullback yesterday, the headlines are saying we now have a mob of retail traders coming for the market itself. By trading up several stocks well beyond what the professionals think they are worth, the headlines scream that the retail investors are beating Wall Street and that the market is somehow broken. I don’t think so.

There has been a lot of talk about whether the stock market is in a bubble. As usual, there are distinguished professionals on both sides of the debate, armed with convincing statistics and arguments. So, what is the average investor to do? We do what we usually do: try to understand the facts of the situation. Let’s start by asking ourselves what a bubble is, as this is the unavoidable first step in deciding whether we are in one.

Today, I'd like to provide an update on the coronavirus, including the economic and market implications. On the medical front, the holiday infection surges have faded. Case growth remains high, but we saw improvements in positive testing rates, as well as a decline in hospitalizations. Absent a sudden appearance of the more infectious strain of the virus, we are likely to see more progress in the next couple of weeks as vaccine deployment accelerates.

For the first time in quite a while, the big picture is positive. On the medical front, the post-Christmas/New Year travel surge has faded, testing has resumed at scale, and the positive test rates have dropped back down. The trends are now positive and likely to remain that way.

It seems appropriate today to consider how we think about politics when we look at our investments. With one administration ending and another starting, politics has obviously consumed much of everyone’s thoughts in the past weeks and months. With the outcome of the election, many are worried—and many are excited. With a new set of policies and priorities, we can reasonably expect the economy to change and the markets to react. Given the emotions that politics evokes, how do we think about politics as we make our investment decisions?

The economic news has continued to soften in recent days. December saw layoffs go up and the number of jobs decline, and, this morning, the retail sales numbers dropped. Consumer confidence has gone down. Clearly, the economic headwinds from the pandemic are getting worse.

As expected, we saw infections due to holiday travel showing up in the data over the past week, with case counts rising to new highs. But by week’s end, there were signs that case growth was peaking as the holiday travel effects started to fade. We could now be approaching the peak, although the events in Washington on January 6 are now presenting a risk of another wave of travel-induced infections. We should know in the next week or so if that is the case.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!!

Markets continued to rally into the end of the year, with strong December results wrapping up a solid year for equities. The S&P 500 gained 3.17 percent during the month as the Dow Jones Industrial Average gained 3.41 percent and the Nasdaq Composite rose by 5.71 percent. Despite the strong returns in December to cap off the year, markets still face very real risks.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

The economy showed further signs of slowing growth in December, with the third wave of the pandemic causing shutdowns that have hit employment. Job creation turned negative for the first time since April, as rising restrictions at the state and local level put increased stress on the labor market. The underlying data showed some signs for optimism, however, as all of the damage came from the leisure and hospitality sector, while other sectors showed surprising strength. Consumer confidence also fell during the month, but business confidence remained surprisingly resilient.