After a volatile and historic 2020 we are optimistic headed into 2021
2020 was a year of surprises - an unexpected pandemic, a global economic shutdown, the sharpest US recession since the 1930s, and then the fastest ensuing economic recovery in history. Equity markets faced similar volatility with the S&P 500 experiencing the fastest bear market in history, and then the accompanying fastest bull market recovery in history. And yet by late-summer the market was once again in full stride and making new all-time highs, even as the wounds from the global pandemic remained.
Heading into year-end the world (and global economy) faces a difficult winter as the labor market recovery is slowing, COVID cases are spiking, and the sustainability of economic growth is uncertain amid new lock-downs. However, as we turn the corner and enter 2021 our outlook is positive. Much of the uncertainty that plagued markets this year appears resolved (US election, COVID vaccine), and we believe the worst to be behind us. We expect the economic recovery to resume in 2021, with widespread distribution of COVID vaccines the key catalyst.
Our theme for 2021 is “restart”, and with a restart comes optimism and the chance to begin anew. The post-COVID era provides that chance for investors, with both opportunities to capitalize on and challenges to avoid. The combination of COVID vaccines and accommodative monetary policy should help restart latent services sector businesses, while also emphasizing the strength of cyclical ones. At the same time, business models will need to adapt, and so labor market slack may persist into the near-future. Accommodative fiscal policy should provide a safety net for individuals and businesses, and help to soften the drag on the economy as this happens.
For investors, portfolios and investment strategies will need to adapt to the current environment. There will be volatility and bumps along the way as this happens, but for those that are disciplined and able to look past them, we see more opportunities ahead for upside than downside.