U.S. equity markets bounced back and forth between gains and losses, and ended the day mixed as investors tried to read between the lines of the Federal Reserve's statement on monetary policy and its pledge to continue purchasing government and mortgage bonds (more below). The Fed sees the economy strengthening and upgraded its growth forecasts, which some investors may have interpreted as a signal that the party will end sooner than expected.
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U.S. retail sales, a measure of purchases at stores, restaurants, and online, dropped a seasonally adjusted 1.1% in November from the prior month as consumers spent more cautiously. October sales were revised to a decline of 0.1% from an earlier estimate of a 0.3% increase. Sales were up by 4.1% in November when compared with the same month a year ago, but there are more and more signs that this foundation of economic strength is starting to wobble.
What's not wobbling is the investor sentiment behind Bitcoin. The cryptocurrency surpassed $20,000 per Bitcoin for the first time, and more and more legacy financial institutions are embracing and buying it. It's as unpredictable as ever, but long-time HODL'ers have done very well. A $10,000 investment 10 years ago looks pretty good right now.
The Fed Leaves Things Unsaid
As expected, the U.S. Federal Reserve left interest rates unchanged, while upgrading its outlook for the U.S. economy, for a change. The central bank now expects real gross domestic product (GDP) to fall just 2.4% in 2020, compared to a decline of 3.7% predicted in September. The Fed also upped its 2021 real GDP forecast to 4.2% from 4% expected previously.
But investors were listening to see how much longer the Fed will continue to buy at least $120 billion of bonds each month, which has laid the safety net under capital markets.
The statement from the Federal Open Market Committee (FOMC) didn't provide an end date, but it did say it would continue those purchases “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” That's a very Fed-like statement, but without an end date or promises to stay the course for a predetermined period of time, investors may be getting worried that continued economic improvement may prompt the Fed to pull the punch bowl away — leaving investors with a nasty hangover.
ETFs Find Consciousness
The harmonic vibrations and rising climate of consciousness among some investors has made 2020 a blockbuster year for environmental, social, and governance (ESG) and socially responsible investment (SRI) ETFs.
$27.4 billion has poured into ETFs using those wrappers in 2020, representing a doubling of assets in those products, according to FactSet. Asset managers have launched 31 ESG-related ETFs so far this year, nearly double last year's sum of 16 and bringing the total number of products in the U.S. to more than 100. BlackRock has been the most prolific of the issuers, but it's been industry-wide as more and more investors are choosing to invest along with their ethics.
What's curious is that Facebook is one of the most widely-held stocks in ESG and SRI ETFs — so it's always worth checking to see what's in the basket to make sure you want it in your portfolio.