The stock market kicked off December on a strong note, offering some optimism for the rest of the year. The S&P 500 Index surged to a five-month high and the Nasdaq Composite climbed to a record high, as investors took in positive economic news and the prospect of additional stimulus from the federal government.
Market watchers believe that the solid start to the month is a sign that stocks will maintain their upward trajectory for the rest of 2020. But that doesn’t mean investing comes without risks. Here’s what investors should keep an eye on as the year ends.
Economic data: The December push was largely a response to upbeat economic news. The November jobs report, for example, showed that the U.S. economy added 245,000 jobs, much more than analysts had predicted. But Wall Street will remain wary of any lingering threats to the global economy. If worrisome signs occur, such as a surge in unemployment numbers, it could put a damper on markets.
Fiscal and monetary policy: With the U.S. economy still recovering from the effects of the pandemic, further short-term stimulus could be just the boost markets need. On the monetary policy side, the Federal Reserve has been keeping interest rates low in an effort to encourage economic growth, and economists expect policymakers to remain accommodative.
The pandemic: Despite improvements in recent months, the virus is still spreading. Investors will be closely watching COVID-19 cases, hospitalizations, and death tolls, as well as any potential shifts in restrictions across the U.S.
The November elections: The U.S. presidential election was a key factor influencing the stock market this year, and that’s not likely to end in December. Investors will remain closely attuned to any developments in the transition of power, including which policies the incoming administration will work on first.
With these factors in mind, it’s clear that there are some risks for investors in the short term. But stock market growth in December could set the tone for the rest of the year. By taking the time to understand the factors driving the market, investors can make the most of the potential opportunities in 2020.