Annual Market Review 2020

Overview

Over the past 12 months, we have endured a global pandemic resulting in numerous deaths and hospitalizations, mass layoffs, a sinking economy, and a contentious presidential election. Our lives and lifestyles changed, where working and learning from home became the "new normal," and in-person communication was replaced by virtual meetings. In short, 2020 was a very memorable year that tested our resolve, patience, and courage.

The year began with news of a SARS-like virus spreading in China. Little did we know the impact this contagion would impart on our health, politics, and economy. Late in January, the very first known case of COVID-19 in the United States involved a Washington state victim who had traveled from the city of Wuhan, China. By February, the growing number of reported cases of the virus prompted travel restrictions, stay-at-home orders, and shutting down of businesses both domestically and around the world. Aside from concern caused by the virus, we were consumed by the impeachment in February of President Trump, who was eventually acquitted by the Senate.

In March, the World Health Organization declared a global pandemic as the spread of the virus reached more than 100 countries, with more than 100,000 reported cases. By mid-March, President Trump declared a state of national emergency. World economies and stock markets were rocked by the spread of the COVID-19 virus. leading to major market sell-offs, plunging stocks well below their 2019 values. The U.S. first-quarter gross domestic product decelerated at a rate of -5%, only to be outdone by a second-quarter deceleration of -31.4%. Fear became the motivating factor in our lives — fear of contracting the virus, fear of losing a loved one to the virus, fear of job loss, fear of economic failure, and fear of losing our money.

In response to the economic turmoil caused by the pandemic, several pieces of legislation were passed, including the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First Coronavirus Response Act, and the massive COVID-19 rescue package, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which included the Paycheck Protection Program and distribution of stimulus checks to qualifying individuals. In May, focus shifted to the death of George Floyd, which sparked protests and confrontations across the country.

Melissa MinterJanuary 5, 2021

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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Annual Market Review 2020

Overview

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