2020: A Year in Review
The United States roared into 2020 with a great economy and low unemployment. The stock market started to show downward volatility the second half of February as whispers of a disease impacting China spooked the markets. The momentum of the economy and markets came to a screeching halt in March as Covid-19 emerged and countries shut down in the face of an unknown pandemic. As fear took over, record breaking daily declines resulted in a drop in the S&P 500 Index of over 34% by late March. Unemployment numbers tumbled to record lows as closures clearly impacted the overall economy with an emphasis on the service and travel industries. Americans entered a dark tunnel. During this time, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This provided forgivable small business loans, increased unemployment benefits, and provided one-time cash payments to Americans. At the same time, The Federal Reserve acted with accommodative actions to help businesses and the economy.
Although high unemployment numbers have persisted largely impacting lower income families, the stock market started to recover in late spring propped up by an infusion of government cash and the hope of a vaccine. After one of the most volatile years in the history of the stock market, investors who persisted were rewarded with over a 18% return in the S&P 500 Index by year’s end.
As is typically the case, an emphasis has been placed on U.S. stocks. While international stocks have followed the same pattern as domestic stocks, the recovering has not been as robust resulting in a lower return last year than domestic stocks. Given the landscape of Covid-19 and employees working from home, commercial real estate (REITS) had a negative return in 2021. With falling interest rates, bonds performed well.
2021: A Look Ahead
After sustaining an unprecedented shock from Coronavirus last spring, the economy is ready to move forward and get back to normal in 2021 with the help of vaccines. While the promise of a better 2021 (how could it not be better than 2020) partially priced into the stock market, accommodative government policy and American’s enthusiasm to spend money as we snap back to normal can help investors earn solid returns. In previous commentary over the last couple of years, readers will find the words cautiously optimistic. For the first time in awhile, there is more upside than downside risk moving forward through the upcoming year. However, very near-term risk and volatility persist in the markets through the first quarter as Covid-19 is prevalent before the vaccine can be widely distributed. As we work our way through this dark tunnel, a bright light can be seen just ahead.
Of course, investors should always have a strategic asset allocation based on long-term goals.