2020 didn’t just end with a bang yesterday, it closed a wild year with Wall Street record highs. The stock markets capped off a heart-pounding 12 months where disastrous lows were offset with all-time highs. Even more impressive, it managed to do so despite a pandemic that shuttered businesses and slowed down the economy to a crawl. As Wall Street celebrates its accomplishments, the general population tries to recover from the carnage. 340,000 Americans died from the coronavirus and millions are hungry, jobless, or both.
By posting Wall Street record highs, all three New York indices finished the year on a positive note. The S&P 500 leaves 2020 16% higher, while the Dow Jones industrial average gained 7.25%. Tech-heavy Nasdaq emerged the biggest winner, rising 43.6% in 2020. How Wall Street managed to emerge from a global crisis better than ever is a remarkable story of timing. The Federal Reserve slashed interest rates to near-zero levels as the government released its largest stimulus program.
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With media providing continuous feeds on coronavirus effort developments, investors remained optimistic that the pandemic is temporary rather than the new normal. The first bet on companies that helped Americans work around the fact that they’re staying at home. Investors rewarded companies that offered online services, work from home tools, delivery services, and video conferencing. After news of vaccine development pointed to availability within the year, the trend shifted to buying stocks that offered the most promise once things get back to normal. Tech stocks received the most attention. However, almost all industries gained some ground when vaccines started rolling out.
Meanwhile, Main Street Takes Losses
America’s biggest companies are flourishing during the pandemic and putting thousands of people out of work. Unlike Wall Street, Main Street took the pandemic’s blows squarely on the chin. Lost in the stock market’s trading frenzy are problems encountered by everyday Americans. The pandemic itself overran hospitals and medical centers with infected patients. State and city shutdowns cut off local businesses and jobs, resulting in massive unemployment and closures. Around 20 million Americans are jobless by the end of December.
John Friedman, Brown University economist and co-director of Opportunity Insights suggests why. “If a few rich people are spending way more than before and many, many poor people are spending much less than before, the overall economy can look just fine. But a lot of people are still suffering,” Michael Farr, president of money management firm Farr, Miller and Washington, says the contrast during 2020 is “stunning.” He observed that “a pandemic-induced economic shutdown of epic proportion has been digested with stocks ending the year 15 percent higher is mind-blowing.”
Looking Toward the Future
Experts believe that investors’ focus on the future remains the major reason why markets flourish even while everything else seems dying. Despite a spike in infections and massive unemployment, it’s not hard to get excited if Goldman Sachs predicts a 5.9% growth in 2021. Coupled with a shirking of unemployment back to 5% and low-interest rates, it’s easy to see why demands for stocks with potential are sky-high.
According to Ryan Detrick, chief market strategist for LPL Financial, stocks don’t look back. This may be the reason why Wall Street record highs continue to happen even as the economy sputters. He said “Stocks are a forward-looking mechanism. They don’t care about what is happening right now or what happened in the past. So much of why stocks have done so well this year is looking ahead to a really significant economic bounce in 2021 as the economy opens up due to the vaccines.”
What to Expect in 2021
If interest rates remain low as promised by the Fed, the environment for stock buying can continue. Much the same as renewed interest in housing purchases, low-interest rates encourage more buyers and investors to take the risk. Greg Valliere, the chief US policy strategist for AGF, thinks this will happen. “Fed Chair Jerome Powell has been quite explicit that interest rates will stay close to zero for another three years. That dwarfs everything else in importance.”
If a new round of stimulus packages happen early next year, this can also spur increased economic activity. If the US vaccination program proceeds smoothly and inoculates millions of Americans, this can serve as the ideal recovery scenario that can propel the economy.
Watch the AFP News Agency video covering the last day of the stock market for 2020, with the S&P 500 setting a record high, and posts a gain of 16% for the year:
Happy New Year! Do you see the US economy recovering by next year? Do signs point to the US breaking out of its slump and starting resurging back? Let us know what you think by commenting below.