2020: A dismal economic year, unless you were on Wall
Street Recommended
ECONOMYGrowing number of Americans
going hungry during Covid pandemic
CORONAVIRUSAfter grueling year, latest
weekly initial jobless claims remain elevated, at 787,000
It might be hard to recall now, but 2020 started off
with an economy full of potential.
Wall Street and Broad St. signs in New York's
Financial District on Dec. 16, 2020.Tayfun
Coskun / Anadolu Agency via Getty Images
Dec. 31, 2020, 5:08 PM +03
By Martha C. White
The world might be waiting on a Covid-19 vaccine, but
thanks to policy booster shots, the stock market ended 2020 seeming to be
largely immune from the contagion that still threatens Main Street businesses.
It might be hard to recall now, but 2020 started off
with an economy full of potential: The Dow Jones Industrial Average was on
track to break through the 30,000 threshold and the unemployment rate fell to
3.5 percent — the lowest in more than half a century. But things were already
starting to unravel as an ominous viral pneumonia worked its way around the
globe.
The Dow closed at a record high of 29,551 on Feb. 12 —
then the patient took a turn for the worse. On March 9, 12, 16 and 18, circuit
breakers designed to halt trading if the S&P 500 dropped by more than 7
percent kicked in when markets plunged. The market hit its nadir on March 23,
with the S&P closing just above 2,237 and the Dow Jones a fraction below
18,592.
The Federal Reserve issued a flurry of announcements
detailing emergency measures it was undertaking to backstop a number of
behind-the-scenes markets, pledging to buy bonds and keep interest rates near
zero, as an event that began as a public health crisis threatened to
metastasize into a financial crisis.
On March 27, President Donald Trump signed into law
the $2.2 trillion CARES Act, a rare act of bipartisan Congressional
collaboration that provided enhanced unemployment insurance payments,
forbearance on debts, suspensions of foreclosures and evictions, loans and
grants for small businesses and payments of up to $1,200 for individual
Americans.
The enormous, multitrillion-dollar scope of the rescue
efforts along with the speed of implementation steadied the economic underpinnings
of the market, and assisted in calming investors.
“I think the original bailout had a huge impact on the
market. I believe without that package, we would not have bounced back,” said
Joseph Heider, president of Cirrus Wealth Management.
In the ensuing months, a sharp — and for many,
maddening — bifurcation took place as Covid-19 swept through the country in
waves of mounting severity. The stock market clawed back its early-2020 gains
and more, with the Dow Jones soaring above 30,000 for the first
time in November.
On the ground, however, the economic picture looked
far less celebratory for millions of American families. “There's definitely a
difference between what’s happening in the market and what’s happening in the
real economy,” said Charlie Ripley, portfolio manager and senior investment
strategist at Allianz Investment Management.
The unemployment rate receded from its April peak of 14.7
percent, but remained elevated, particularly for Black and
Latino workers, whose November unemployment rates were 10.3 percent and 8.4
percent, respectively.
Even as the personal savings rate soared, bolstered by
expanded unemployment benefits, forbearance programs and a sharp contraction in
the service economy due to shutdowns, half of American families lost income as
a result of the pandemic. More than two in five of those had not recovered that
lost income as of December, according to a Bankrate.com survey. The losses were concentrated
among the poorest Americans, who also anticipated the impact of longest
duration: 41 percent of respondents with household income below $40,000 said
their income would either take more than a year to recover, or would never
recover at all.
“I think people were really shocked that the stock
market recovered so well while the economy was doing so badly. But capital
markets are a very cold, emotionless thing.”
Mitchell Goldberg, president of ClientFirst Strategy,
said technical features of the way the major stock indices are designed
accounts for much of the baffling divide between Wall Street and Main Street.
“The way the market mechanics work, the S&P in
particular, is designed to show the performance of the biggest stocks, not to
reflect the performance of the economy,” he said. Both the S&P and the
tech-heavy Nasdaq are market-cap weighted, meaning that the bigger the
company, the more impact its stock value
fluctuations have on the performance of the index as a whole.
There were a couple of additional factors driving
stocks higher in 2020. Goldberg credited the introduction of fractional shares
and commission-free trading platforms like Robinhood with generating interest
among a new, often younger crop of retail investors. The Federal Reserve’s
interventions also kept fixed-income returns very low. Investors — whether big
institutions like pension funds or just workers accruing retirement nest eggs
in IRAs — had few choices other than equities to seek out meaningful returns.
As 2020 drew to a close, investors had two new reasons
to breathe a sigh of relief: Certainty about the outcome of the presidential
election, and good news on the Cover-19 vaccine front. The stock market always
looks forward, and analysts said this is driving loftier valuations — even as
politicians like President-elect Joe Biden and public health experts warn of a
grim winter for the country.
Goldberg acknowledged that this disconnect can be
frustrating, even alienating for the many Americans wondering what happened to
their jobs, their savings accounts and their financial security.
“I think people were really shocked, and a lot of
people were somewhat angry that the stock market recovered so well while the
economy was doing so badly,” he said. “Capital markets are a very cold,
emotionless thing.”
Martha C. White
Martha C. White is an NBC News contributor who writes
about business, finance and the economy.
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