“We always live in an uncertain world. What is certain is that the United States will go forward over time.” – Warren Buffett
After a rough 2020, it looks like the US and the rest of the global economy are ready to move forward in 2021.
The COVID pandemic induced bear market ended just over a year ago on March 23, 2020. Despite the turmoil caused by the pandemic plus the economic and political twist and turns over the past year, investors who kept a long-term mindset have had a lot to be happy about. The S&P 500 rallied from a bear market low on March 23, 2020, gaining nearly a 75% rate of return over the next year.1
For those who remained patient, the first year of the new bull market has been a relatively easy investing environment. Historically however, year two and beyond can be challenging. The second year of a new bull market typically posts strong returns but with greater ups and downs. Looking at past bull markets, stocks have never been lower during the second year but gains over that time period have been harder to come by with the average pullback in year two being more than 10% before the market closed up for the year with an average return of +16.9%.
As we enter the 2nd quarter of 2021, there are plenty of reasons to remain positive but cautious. It may be early to declare victory against COVID-19 but hospitalizations and deaths have been falling throughout 2021, and most health experts agree the worst of the pandemic is now behind us. According to the CDC, half of those above the age of 65 has been fully vaccinated and a third of the eligible U.S. population has received at least one dose of the vaccine. At this point, we think we can confidently look forward to economic and social ‘normalization,’ with restrictions gradually falling away.
As the U.S. and the rest of the globe continue to make progress against COVID-19 in addition to the historic stimulus measures, the U.S. and global economies looks to move forward. With about $1.9 trillion in pandemic relief already signed into law, the sheer size of the bill and the inclusion of direct payments to taxpayers, could continue to drive the stock market higher in 2021.
Warren Buffett once said, “In the business world, the rearview mirror is always clearer than the windshield.” While we don’t know what is instore for us down the road in 2021, we seem to be turning the corner on our battle with COVID-19, the U.S. economy could surpass China’s economic expansion for the first year in several decades, which would also make U.S. growth in 2021 the fastest since 1959, when it rebounded from a deep recession following the so-called Sputnik shock of 1957.
While there are always positive and negative factors weighing on the economy and the stock market, when we look out at 2021, we can see both. In spite of the negatives, we remain confident but cautious that the positive forces in the economy and markets will far outweigh the negative forces in 2021.
1. Kiplinger. March 23, 2021. https://www.kiplinger.com/investing/stocks/602493/stock-market-today-032321-stocksfall-on-anniversary-of-bear-market-bottom