In this 2020 recap: a pandemic sends the economy and financial markets reeling, leading to relief programs for consumers and businesses and a shift in priorities at the Federal Reserve; the global economy stumbles, but its key players reach important trade agreements; vaccines emerge, and a sustained stock rally set records.

2020 Economic Review

 

The Year in Review, Presented by Jack Turner

 

THE YEAR IN BRIEF

The global pandemic disrupted economies, financial markets, and daily life in 2020. Households and businesses were put to the test during the toughest and grimmest years in decades. The winter brought a resolution to the U.S.-China tariff dispute, the Brexit referendum, and the first U.S. appearance of the novel coronavirus. As spring started, abrupt stay-at-home orders in response to COVID-19 curtailed business activity, which dampened consumer spending. The federal government responded, arranging stimulus payments for millions of Americans.  

Wall Street bounced back from its March downturn, but the economy limped along. The pandemic entered its worst phase in fall, but two highly promising vaccines were announced in November, and as winter started, they began to roll out to the public. On the cusp of 2021, Congress approved a second national economic stimulus, and the European Union and United Kingdom signed off on a post-Brexit trade deal.

There are many unanswered questions as we enter 2021. Will mass vaccination happen as quickly as we anticipate? Will a successful vaccination program lead to more hiring, more travel, more in-store shopping, and more confidence? The financial markets will be watching progress on this effort.

 

 

THE U.S. ECONOMY

The pandemic sent the U.S. economy into an abnormal phase, and so our fundamental economic indicators displayed atypical readings.

The Department of Labor's main jobless rate, 3.5% in February, hit 14.7% by April. Headline unemployment declined for the next seven months, to 6.7% by November. The U-6 unemployment rate, measuring unemployment and underemployment, peaked at 22.8% in April.1,2

As people stayed home, consumer spending trended lower, falling 6.9% in March and 12.6% in April.3

The federal government moved to boost economic activity. As March ended, a $2 trillion economic stimulus bill became law, featuring cash payments to households, temporary increases in federal unemployment benefits, and a Small Business Administration program pledging to offer distressed companies funds equivalent to 8 weeks of payroll costs. The aid began rolling out in April, and in May, the White House unveiled Operation Warp Speed, a public-private partnership intended to produce COVID-19 vaccines in record time. Two vaccines were approved by the Food and Drug Administration by fall.4,5

The Federal Reserve took the benchmark federal funds interest rate down to a target range of 0-0.25% and revived emergency loan programs first introduced in 2008. It collaborated with the Department of the Treasury on efforts to buy corporate bonds and encourage business loans. In a monetary policy shift, the central bank said in August that it would accept average inflation of 2% for the near term and was willing to tolerate a little more inflation in the economy while pursuing the goal of full employment.6,7

As stay-at-home orders lifted, the economy rebounded. Gross domestic product, which the Bureau of Economic Analysis said had contracted 31.4% in the second quarter, grew 33.4% in Q3. The BEA also recorded a 41.0% Q3 climb for consumer spending. Stay-at-home orders returned in Q4, however, prompting another federal economic stimulus in December.8

The housing market stayed strong. By November, existing home sales were up 25.8% year-over-year, according to the National Association of Realtors; Census Bureau data showed a 20.8% annualized improvement for new home buying.9,10

The U.S.-China tariff dispute eased throughout the year. In the January 2020 trade talks, the U.S. promised to lessen import taxes on Chinese goods, and China agreed to buy more American exports.11

 

THE GLOBAL ECONOMY

The International Monetary Fund expects the world economy will contract 4.4% in 2020. If that estimate holds, 2020 will be the worst year for global growth since the 1930s.

The U.S. economy shrank 4.3% in 2020, according to the IMF's forecast. That is better than the 8.3% setback estimated for the eurozone. The IMF projects that China's economy grew 1.9% last year. As for 2021, it sees GDP advances of 8.2% for China, 5.2% for the eurozone, and 3.1% for the U.S.12,13

The European Union and United Kingdom agreed to a post-Brexit trade deal on December 24. This completed the Brexit process, which began with the 2016 leave vote and included the U.K.'s formal exit from the E.U. last January. Businesses and financial firms based in the U.K. now face new trade rules and costs, even with the new pact in place.14

Looking at stock benchmarks around the world, there were more ups than downs. South Korea's Kospi Composite stood out with a 30.75% 2020 gain. Argentina's MERVAL climbed 22.93%, Taiwan's TWII 22.80%. Two other notable 2020 advances: Japan's Nikkei 225 added 16.01%, and China's Shanghai Composite rose 13.87%. There were also notable retreats: Indonesia's IDX Composite lost 5.09%, France's CAC 40 7.14%, Russia's RTS 10.42%, and Spain's IBEX 15.45%. The MSCI EAFE index, a broad benchmark tracking developed-economy stock market performance in Europe and Asia, rose 5.43%.15,16

 

Q U O T E   O F   T H E   Y E A R

 

“We don't even know how strong we are until we are forced to bring that hidden strength forward.”

ISABEL ALLENDE

 

 

LOOKING BACK, LOOKING FORWARD

Both the S&P 500 and Dow Jones Industrial Average ended the year at record highs. On December 31, the S&P settled at 3,756.07; the Dow closed at 30,606.48.17

As the table below shows, the Nasdaq Composite notched a solid gain for the year. The tech-heavy benchmark rallied strongly from its March low, as employers, schools, and households worldwide invested in software and hardware that let people work and learn from home. Its final 2020 settlement: 12,888.28.

The Russell 2000 small-cap index also did well in 2020, rising 18.36% and ending the year at 1,974.86.17,18

In another notable development, the yield of the 10-year Treasury note dipped below 1% on March 5. It briefly flirted with 1% in the fall but ended the year below the mark.19

Just how volatile was Wall Street last year? Look at what went on with the S&P 500. The index sank 8.4% in February and 12.5% in March, closing the door on an 11-year bull market. Then it rebounded 12.7% in April. And its comeback was just beginning. By August, it had recovered 100% of the losses it incurred in the Q1 downturn, and it ended up notching 33 record highs during the year.17

 

MARKET INDEX	2020	2019	2018	2017
DJIA	+7.25	+22.34	-5.63	+25.08
NASDAQ	+43.64	+35.23	-3.88	+28.24
S&P 500	+16.26	+28.88	-6.24	+19.42
BOND YIELD	12/31 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TREASURY	0.93%	1.76%	2.43%	1.97%

 

Sources: Yahoo Finance, December 31, 2020

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

 

Is Wall Street witnessing the infancy of another powerful bull market, destined to last for several years? Or are analysts being too optimistic about equities?

Yes, 2021 could feature accelerating vaccination and strong corporate quarterly reports. The worry is that the markets may have priced in these factors as 2021 begins.     

 

 

Jack Turner may be reached at 931-552-1515 or info@jackturner.com
https://jackbturnerandassociates.advisorwebsite.com/
 

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The TWII index, also known as the TSEC Taiwan Weighted Index, or the Taiwan Capitalization Weighted Stock Index (TAIEX), is a stock market index which follows the performance of the Taiwan Stock Exchange (TWSE). Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The IDX Composite (formerly: Jakarta Composite) is an index of all stocks listed on the Indonesia Stock Exchange, or IDX. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The RTS Index ("Russia Trading System") is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, calculated in U.S. dollars. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain's principal stock exchange. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

CITATIONS:
1. Trading Economics, January 2, 2021

2. CNN Business, May 8, 2020

3. Investing.com, January 2, 2021

4. Los Angeles Times, December 18, 2020

5. Treasury.gov, January 2, 2021

6. New York Times, December 23, 2020

7. Reuters, August 27, 2020

8. The Balance, December 27, 2020

9. Reuters, December 22, 2020

10. Census Bureau, December 23, 2020

11. NPR, January 15, 2020

12. Seattle Post-Intelligencer, December 31, 2020

13. CNN Business, October 13, 2020

14. The Week U.K., December 23, 2020

15. Barchart.com, December 31, 2020

16. Wall Street Journal, January 1, 2021

17. Los Angeles Times, December 31, 2020

18. CNN Business, December 31, 2020

19. Treasury.gov, December 31, 2020