Happy New Year!
2020 was a year that won't soon be forgotten. Who could have imagined that the stock market would not only recover from the stomach churning free fall in February and March, but would go on to set record highs.
The stock market's robust rally has occurred in the midst of a global pandemic that has taken the lives of nearly two million people and sickened many more. The pandemic has left businesses in sectors like travel, hospitality, retail and food service struggling mightily to stay afloat. Unemployment remains high as lockdowns continue to impact businesses and their workers. So how can the stock market look so good when the world economy looks so bad?
The stock market is booming because of optimism. We poured money into the stock market when things were looking really ugly, knowing that the stock market would recover. Optimism propelled the market throughout 2020 and with good reason. At the end of March Congress approved the CARES ACT which provided trillions of dollars in stimulus funds for cash payments to Americans, unemployment benefits, and loans to small businesses and corporations. The Federal Reserve slashed interest rates and injected cash into the markets to bolster the economy. Perhaps the most important cause for optimism was the knowledge that treatments and vaccines for the Coronavirus were on the horizon.
History has shown us that the stock market often recovers from a recession/depression ahead of an economic recovery. As an example, stocks dropped sharply in the downturn of 2007-2009. The market recovered quickly but it took several years for the unemployment rate to fall below pre crisis levels. Similarly, while stocks charged higher in 2020, many economists don't expect the US to recover all of the jobs lost during the pandemic until 2023 or later.* The economy will recover over time as life slowly returns to a new normal as more and more people are vaccinated against the Coronavirus.
While 2020 presented plenty of challenges, there was some good news:
- The Science and Medical communities all over the world worked together tirelessly towards a common goal, sharing information to identify the Covid-19 virus and to develop vaccines to prevent us from getting the virus. The first vaccines were administered last month.
- Hundreds of thousands of people volunteered in clinical trials all over the world to receive the Covid-19 vaccine to test for safety and efficacy....thank you!
- Animal shelters, nonprofit rescues and private breeders reported that the pandemic created a huge demand for dogs and puppies as people stayed at home.
- With so many of us working from home, carbon emissions (pollution) dropped by record amounts.
- A baby panda was born at the National Zoo!
2021 is already off to a good start! While it's impossible to predict what the year ahead will bring, we are anticipating that the stock market will continue to advance as more and more people are vaccinated and the economy returns to a new normal. To go into more detail about what we can expect from 2021, I am hosting a webinar on January 21st with Brian Casey, Senior Vice President at the American Funds, one of the oldest and most respected mutual fund families in the world. Brian will be on hand to answer all of YOUR questions about what we can expect over the next year from the stock market and the economy. I'll be sending out more details on this event in the days ahead.
Over the next week I will be sending you End of Year Portfolio Performance Reports. Please contact my office if you would like to schedule a review either in person or over Zoom.
Wishing you good health and happiness in the New Year.
Johanna
*Wall Street Journal: Lessons From a Crazy Year in Financial Markets, 12/31/20