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.

Today, I'd like to provide an update on the coronavirus, including the economic and market implications. On the medical front, holiday travel effects have kept infection growth at high levels, and positive results also moved to new highs. Still, we should see vaccinations ramp up by the end of the month, and we could approach herd immunity as soon as June.

As expected, we saw a pullback in many coronavirus indicators over the Christmas holidays. But also as expected, the data has bounced back, indicating that the drop was due to slower reporting rather than an actual decline in cases. Looking forward, we still have another couple of weeks where infections due to holiday travel will show up in the data, and there are signs that is starting to occur. The next two weeks are likely to show continued case growth. While some sections of the country are showing improvements, we are not through this wave yet.

Today should be the day we see Washington start to turn blue. With the Congress meeting to count the inaugural votes and with the Georgia Senate runoff likely to show both seats won by Democrats, all three arms of government will be under control of the Democratic Party come the inauguration.

At the start of a new year, it makes sense to look back and see where we were, before looking ahead to where we are going. This year, doing this is especially important, given the significant changes we saw in December. But we start January in a very different place—a place with better news, better prospects, and lower risks.

December was a great month for the markets, with gains across the board. Unfortunately, we saw rising economic damage. Job growth dropped, and layoffs rose. Consumer confidence and spending also declined as the medical risks drove governmental shutdowns. Still, business confidence and spending were solid, and December's federal stimulus bill should help revive consumer demand.

As expected, we have seen a pullback in many pandemic indicators over the Christmas holidays. We are also, again as expected, starting to see the data bounce back, indicating the drop was more due to slower reporting than an actual decline in cases. Looking forward, holiday travel may well give us another surge, so take the current better news with a grain of salt. While a peak is coming, we are not through this wave yet, despite encouraging signs from the Midwest.

Today, I'd like to provide an update on the coronavirus, including what it means for the economy and markets. On the medical front, there were signs the third wave may be cresting, as both new cases and positive tests have ticked down. Further, people are now getting the Pfizer vaccine, and the Moderna vaccine will soon be available.

The third wave of the pandemic may be showing signs of a peak. While new cases remain very high, the seven-day daily average was down for two days in the past week, suggesting we may be close to a peak. Given the lag from Thanksgiving, that conclusion seems reasonable as much of the travel surge should be starting to play out, while control measures are becoming more widespread.