As for the markets, the year of 2020 began and ended as a wild roller-coaster ride. The global financial markets set record highs in February, and then the coronavirus arrived with an immediate economic freefall causing stocks to plunge. Not long after, investors saw new opportunities in the uncertain recovery and chose to focus on the road ahead. The S&P 500 gained 11% in the quarter, commodities rallied with a gain of 10%, and international stocks began to show signs of outperforming, all spurred on by reopening economies, government stimulus, and the positive developments in therapeutics and vaccines.
Just one week after the U.S. presidential election on November 9th, the day unexpectedly became known as ‘Miracle Monday’ as it brought refreshing news that a jointly produced vaccine between Pfizer and Biontech had a more than 90%efficacy in preventing Covid-19 infections, and one week later Moderna vaccine trials announced similar results. The speed at which these results were reported were nothing short of amazing, helping spark a massive rotation from growth stocks to the most beaten down, particularly anything related to leisure, travel and hospitality. The mass rollout of these vaccines, soon to be joined by others, shall finally help lead our lives to a return to pre-COVID normalcy.
With many selective shutdowns around the world occurring, it is hard to overstate the significance successful vaccine rollouts will have as the world economies are literally getting a shot in the arm with regards to the uncertain economic and market outlook. The economy, having been in the middle of a challenging few months, prepares to pick up the pace with these widespread inoculations of the vaccines that have the potential to unleash a burgeoning amount of pent-up demand and could translate to a GDP growth rate for the year not seen since the 1980s.
In addition, the American economy in particular has been rescued and propelled by an incomprehensible amount of federal government stimulus that was just augmented by the passage of another $900 billion spending package with more on the way. As noted in the Wall Street Journal, “The Federal Reserve, European Central Bank and Bank of Japan have collectively expanded their balance sheets by around $8 trillion in 2020. It took them almost eight years to achieve the same growth following the seizure of global financial markets in September 2008.” These staggering numbers of record fiscal and monetary stimulus should further quicken the pace of future growth and normalization, helping millions of small businesses, individuals, and families when needed most.
Looking ahead, several tailwinds will remain for the broad market and we are optimistic about the long-term prospects for the economy. The eventual recovery in jobs growth should all boost personal income and savings rates, and we are hopeful for a more sanguine political environment from here where moderate forces come together with future bipartisan legislation.
However, given the extreme run up in equity prices in recent months, we also believe markets have effectively borrowed from future returns. As such, we feel equity prices and stock markets are vulnerable for near-term corrections. However, as the economy picks up the pace as expected, there are reasons to believe that future corporate earnings and consumer demand will rebound strongly providing support during such times of consolidation. Regardless, we believe clients’ portfolios are well positioned regardless of outcomes, and we stand ready for tactical adjustments as needed while the story unfolds.
Perhaps 2020 will now gently fade into a difficult memory, one where the medical world came together and blessed us with the miracle of highly effective vaccines. We know the year will bring our lives much closer to where it was prior to the pandemic and we look forward to investing more time in person with family, friends and perhaps seeing more of you in person. We wish you much health and happiness in the New Year. Please do not hesitate to email us or call (800) KGA-4916 if there is anything we can do to help you in any way.
Eric W. Kendrick, CFP