Posted January 6, 2021
As December came to a close, the global equity markets added several percentage points to their 2020 gains. The overall U.S. stock market gained over 4% for the month, with small cap companies delivering double the return of their large cap counterparts. Foreign stocks from both developed and emerging economies did even better than our domestic ones, beating U.S. stocks by several percentage points. The outperformance of U.S. small cap stocks and foreign stocks is a departure from the first half of the year, when U.S. large cap stocks were clear leaders.
For investors, it is nice when the year ends on a positive note. But we should not take that as a sign that the economy has returned to full health, nor that the struggle with COVID-19 has eased. Using the latest third quarter data, U.S. GDP is still at least one year’s worth of growth below its end-of-2019 level, and certain industries are still far away from achieving normalcy. Additionally, we believe it will take several years for the economy to get back on track with its prior growth trendline. Recovering that trendline starts with the job market. After rapidly improving from its springtime levels, employment gains have slowed. The unemployment rate currently sits at 6.7%, nearly double where it was when the year began. The month-over-month improvement was a mere 0.2%.
Acknowledging the inherent difficulty in forecasting, we believe the economic recovery will continue in 2021, although not without volatility and setbacks. The major resurgence of the novel coronavirus, the emergence of a faster-spreading strain, and delays to vaccination programs present the first set of challenges to overcome. Without downplaying the significance of those challenges, we expect renewed positive economic momentum at some point this year as vaccination programs find their footing and restore much-needed normalcy to our lives.
When we look back on 2020, the unpredictability of the financial markets was on full display. Even if one had predicted that a global pandemic would occur, few would have then forecast a double-digit increase in both unemployment and stock prices. This year serves as a good example of why we encourage clients to ignore the headlines and stick to their financial plans.
Now having crossed into the New Year, we bid 2020 farewell and remain hopeful for a smoother road ahead. C.S. Lewis captured a sentiment many of us hold about this past year when he said, “There are better things ahead than any we leave behind.”. We wish you a healthy and safe 2021.
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