With 2020 coming to a close, many have been asking what is in store for the market in the year 2021. The past year has been very tumultuous for the market and the economy as a whole, and many are ready for it to be over. In order to ponder what is in store for the coming year, it is necessary for us to review the past year and how previous recoveries proceeded.
In 2020, Murphy’s Law seemed to definitively take hold: that is, everything that could go wrong, did go wrong. We experienced a global pandemic, riots stemming from social issues, and possibly the most controversial Presidential Election In history. Markets bottomed out near the end of March and completed a miraculous recovery largely due to the influx of stimulus into the economy. This stimulus allowed corporations in affected industries to stay afloat until there was a semblance of a return to normal.
As we enter 2021, there is a sense of optimism in the financial markets. The vaccines from Pfizer and Moderna have begun being distributed in most of the developed world, leading many to believe that most industries will be able to fully resume by mid-year. However, things will not get “back to normal” as many have put it. The pandemic forced businesses to adapt to unique circumstances and in many cases has led to the advent of new technologies and work processes which are more efficient, even in non-pandemic situations. In order to see what 2021 will bring with regards to the performance of the market, it is important to look at previous recoveries to see where we are at.
In the third quarter of 2020, the US economy grew 33% and effectively ended the coronavirus induced recession that began in the first quarter of the year. At the same time, this also began the official recovery period which we can look to in order to gain some insight. The previous four economic recoveries lasted at least four years, which gives an indication that the US economy may have a fairly long economic expansion ahead of us. Despite elevated stock prices and already corporate earnings numbers that are already quite lofty, the possibility of an expansion last several years gives reason for investors to stay invested.
While many are indeed optimistic, we think that it is important to stay cautious during these volatile times. we hope the expansion happens, but the market is at an all-time high, and as such it is prudent to be careful. Therefore, we have added in daily essentials and stocks that have strong balance sheets. In our Kings model we have increased those holdings and international.