January 2021 –
December 2020 Market Update
A Year to Remember and Forget
Investment management and financial planning are often viewed as a “numbers business”. They are not. They are a “people business”. 2020 reinforced this. The pandemic has affected every Bigelow client and employee. While 2020 ended up as a “good” investment year, the numbers mask the challenges, fears, and concerns clients experienced and many continue to face. The pandemic has also revealed the importance of personal connections, family, optimism, and resiliency. Vaccines foster hope for a return of large family gatherings, unmasked interactions with friends, and Zoom-free days.
The timing of this return to more normal life conditions and experiences is uncertain. The recent resurgence in virus cases is unfortunate but not insurmountable. With vaccine availability increasing, brighter days are certainly ahead. Hopefully, 2021 will bring a more optimistic view of the future and help us forget the fears felt in 2020 while remembering that life and work are always a “people business.” Thank you for your trust.
MARKET and ECONOMIC NEWS: Near-term Slump, Long-term Recovery Expected
2020 brought a severe economic decline and the fastest bear market in U.S. history. This was followed by the fastest economic recovery and bull market in U.S. history. Timing the market proved more futile than ever. In 2020, U.S. stocks returned 20.88%, foreign stocks returned 10.65% and bonds returned 6.4%. U.S. stocks were led by technology companies and other growth-oriented sectors.
As the financial system faltered, investors rushed to own growth stocks less tied to the economy, leading to more economically sensitive companies and countries underperforming. A sustained economic recovery could reverse this trend. Diversification should remain a priority.
The rapid increase in coronavirus cases in the United State and globally is weighing on current economic activity. After seven straight months of job growth, jobs declined by 140,000 in December. Another round of government stimulus is expected to help buffer the economic impact.
2021 consensus growth estimates are 3.9% for the U.S. economy versus -3.5% in 2020. Global economic growth is expected to top 5.1% versus -4.4% in 2020. U.S. and global economic growth is expected to accelerate in the second half of the year.
UPCOMING ITEMS TO WATCH: Vaccine Distribution, New Administration Priorities, and Job Growth
Continued fiscal (stimulus checks, government spending) and monetary (low interest rates) policy should support the economy in the near-term. Accelerating economic growth in the latter half of 2021 and the years ahead is premised on the economy standing on its own. The U.S. is a consumption-driven economy. The pace of vaccination administration and the pace of an economic recovery are directly linked. The new administration is expected to prioritize vaccination distribution, economic support, and job growth.
The Democrats’ win in Georgia and resulting Senate control provides President Biden with more legislative flexibility. However, the narrow Senate margin and pandemic challenges may temper support for tax policy changes affecting the middle class. Tax increases at higher income levels are more likely to garner support given the size of the deficit.