The year 2020 has finally come to an end, putting behind us a pandemic-laden period that brought unprecedented challenges and disruptions. Along with the health crisis and prolonged global economic recession, paradoxically, came strong financial market results. Over the course of the year, the Dow Jones Industrial Average ricocheted between 18,000 and 30,000, eclipsing the latter record level during the final weeks of the quarter. Thankfully, in a glowing example of human innovation, public sector partnerships with pharmaceutical companies produced vaccines and therapeutics at a rapid pace, giving us hope that there is light at the end of the tunnel in 2021.
Much of the stock market gains in the quarter came on the heels of the November 3rd presidential election, where share prices had their strongest post-election week in ninety years. As in the past, the market was looking beyond current challenges, such as a 17% decline in corporate earnings for the 4th quarter, instead focusing on a potential economic recovery in 2021 that could include moderate GDP growth of 2-3%. Investor optimism was also bolstered by the Federal Reserve’s unwavering stance of accommodative monetary policy and its commitment to keep short term interest rates near 0% for the time being.
Looking ahead, a new administration in Washington means adjustments to American regulatory, tax, and trade policy. The equity market will be aiming for fresh record highs in the New Year, although it will have to contend with expensive stock valuations and demanding investor expectations that leave little room for error. There are, however, worrying signs appearing on the jobs front. The recent December employment report showed a sobering 140,000 decline in payrolls, adding to the cumulative 10 million jobs lost and not recovered during the pandemic. Recognizing that getting people back to work is a priority for the Biden administration, there is speculation of a bold $1.9 trillion stimulus plan being developed to combat the virus. The relief program will be targeted to those hurt most by the pandemic: small businesses, households, and local governments, while also addressing other areas of need such as infrastructure investment.