Happy New Year to you. My hope for all of us is that this is a year of good health, much happiness and prosperity.
A New Year – Turn the Page
When you raised your champagne glass (or beverage of choice) to ring in the new year, how many of you wished “Good Riddance” to 2020? At this moment, it seems impossible that last year was anything other than a really bad dream for so many people. No one could have predicted that we would endure nearly every disaster known to humanity – except for an asteroid hitting Earth.
Hopefully very soon, the incessant smell of Clorox wipes and hand sanitizer will be replaced with fragrant candles and aromatic (stinky) perfume.
Hopefully soon we can kvetch about people using their cell phones in the movie theatre, overcrowding the restaurants, and taking all the prime tee times at the golf course.
We may still be leery about shaking hands or hugging strangers, but we may not have to wonder whether the unmasked person is a super-spreader.
Someday, hopefully very soon, the inconveniences, sorrows and emotional strain caused by COVID-19 will be a distant nightmare in our collective consciences.
And hopefully very soon, we can agree to disagree without being disagreeable or combative.
I am so glad for the new year and, very soon, the opportunity for all of us to return to living our lives of significance.
While most of the country was quarantining or being locked down in 2020, Wall Street kept on chugging – moved by world events and then completely shrugging them off to move on quickly.
The market had a year’s worth of losses in just over a month this spring, only to turn around and pack an entire bull market’s worth of gains into less than nine months. Even within the span of a few hours, the market in 2020 would sometimes careen to a loss that would have been remarkable for a full year.
Consider one day in March, when the S&P 500 plunged 12% after President Donald Trump acknowledged a recession may be on the way because of the pandemic. That was a worse loss than the index has suffered in 45 of the past 50 years.
Almost as quickly as it plunged, the stock market zoomed higher again when Congressional and Federal Reserve intervention provided some financial relief.
The markets regained all its losses in less than five months and surged 64% from April through December.
“Everything was so fast. We went from peak to trough in 33 calendar days, which was three times as fast as the 1987 bear market. Feb. 19 was the record. It fell 34% in 33 calendar days,” according to Sam Stovall, chief market strategist at CFRA. “The Fed said we’re going to do whatever it takes, the market said you don’t fight the Fed and we got to breakeven on Aug. 18, which made it the fastest recovery on record and then we scored 19 new highs since then.”
The good news is that the crazy action for markets last year was likely a singular response to COVID-19, not a preview of a “new normal”. Most pundits say investors can expect movements in 2021 closer to what they were used to, as the economy is nursed back to health following the rollout of several Coronavirus vaccines.
If anything, analysts say the whiplash provided another lesson that holding steady is often the best response for investors to crashing prices rather than trying to time the market. Panic selling was (and is) not a profitable strategy.
As you know, I am always loath to predict anything. Needless to say, the greatest unknown for 2021 is how quickly the pandemic can be arrested and we can return to “business as usual” and a semblance of normalcy.
Undoubtedly, there is massive amounts of pent-up anxiousness to “get out” when people feel comfortable traveling, eating out, etc. Certainly, many saved a lot of their “discretionary expenses” budget to do all the things they were unable to due to social distancing and are now ready to “party like its 1999”. We may see the “Roaring 20s” all over again.
However, as pendulums swing, that euphoria will temper, and normality will return. Valuations have risen quite dramatically, obviously. It certainly would not be surprising (rather welcomed) to see the markets pause and take a 10% – 12% adjustment from these lofty levels. That would be normal behavior and not something to fear or induce panic.
The bottom line is that things are okay from a market perspective.
Should things change, we will stay on top of any market gyrations that need our attention. For now,
Let’s ring in the new year with hope that the rollouts of the vaccines will be successful and allow us to enjoy the things most important to us. Until that time comes, please turn off the news and devices, enjoy the comfortable temperatures and take care of yourselves and those most important to you. Until your time comes to roll up your sleeve, please mask up, physically distance, and do your best to maintain your sanity and sense of humor.
As always, thank you for the trust and confidence you place in us. It is something we never take for granted and sincerely appreciate. Please do not hesitate to reach out whenever you have questions, concerns or whenever we may be of service to you. Again, best wishes for a prosperous and healthy New Year.
Joe Downs, CFP® and John Cunningham, CFP®