While the holidays are typically a time of relaxation and celebration with family and friends, this December marks the end of a year that we are happy to put behind us. COVID-19 has impacted everyone in some way, and the pandemic has certainly left its mark on the global economy. The initial spread of the virus in 2020 propelled the U.S. unemployment rate to 13%, while leading to a 33% contraction in national GDP. The recession that ensued was the most pronounced economic shock since World War II, hitting certain parts of our economy, such as restaurants and travel, extremely hard.
In hindsight, the strong policy response by Federal Reserve Chairman Jay Powell prevented far greater economic loss and market disruption. Specifically, the Fed extended lifelines to businesses and created special funding facilities for municipalities and foreign central banks, all of which contributed to a budding U.S. economic recovery and stability within the financial markets. In November, the Dow Jones Industrial Average eclipsed 30,000 for the first time, while stock markets around the world have been equally strong, anticipating a “V” shaped recovery for developed and emerging economies alike. In another sign of optimism, and on the heels of a 4.4% expected decline in global business activity for 2020, economists at the International Monetary Fund are now forecasting worldwide economic growth of 5.2% in 2021.
Perhaps the most remarkable accomplishment of the year was the speed of both vaccine and therapeutic developments to counteract the virus. Drug researchers around the world have provided this latest example of human ingenuity, spurring hope for a much-needed economic recovery and a return to the normalcy which we all long for. Beyond this medical innovation, there were other virus-related trends formed this year. Working remotely was a major theme, as well as companies relying more on automation and other digital technologies (i.e., artificial intelligence). Adoption of these new techniques was accelerated by the pandemic and represent trends we see lasting for many years to come.
There is much reason for optimism in 2021 with the distribution of multiple vaccines being at the top of the list. In addition, the Federal Reserve is expected to maintain its stance of a very accommodative monetary policy which will support market conditions in conjunction with benign inflation, low interest rates, and positive corporate earnings momentum. With the Presidential election now behind us, the markets are left to speculate on the composition of the Senate which will be known January 5th following the Georgia runoff. Regardless of the political outcome, we should not lose sight of the proverbial light at the end of the tunnel in our battle against the virus. As for the stock market, equity performance this year was nothing short of miraculous. With 2021 on the horizon and capable of delivering its own share of surprises and opportunities, we are poised to move forward in a hopeful yet vigilant manner.