Stocks see record year as federal stimulus bucks virus
The U.S. stock market ended 2020 at all-time highs, enriching the wealthy and capping off a soaring comeback despite a deadly pandemic that has killed more than 340,000 Americans and left millions jobless and hungry.
The S&P 500 index, the most widely watched gauge, is finishing the year up more than 16 percent. The Dow Jones industrial average and the tech-heavy Nasdaq gained 7.25 percent and
43.6 percent, respectively. The Dow and S&P 500 finished at record levels despite the ongoing public health and economic crises.
Wall Street’s resurgence has been fueled by the largest federal government stimulus ever, historic support from the Federal Reserve and optimism about how quickly the economy is likely to bounce back next year as coronavirus vaccines become widely distributed. Investors have largely ignored the ongoing pain on Main Street, including pronounced unemployment, overrun hospitals and battered small businesses. On the eve of the new year, nearly 10 million people remain out of work, a jobs crisis worse than anything seen during the Great Recession.
Michael Farr, president of Farr, Miller & Washington, a money management firm based in the District, said that “2020 has been stunning,” adding: “That a pandemic-induced economic shutdown of epic proportion has been digested with stocks ending the year 15 percent higher is mind-blowing.”
Investors are focused on the future. Goldman Sachs predicts growth of
5.9 percent next year — the best annual increase since 1984. And the unemployment rate is expected to fall to 5 percent, according to the Federal Reserve, meaning 2 million more people could return to work. Corporate earnings are forecast to balloon in the second half of the year, and crucially, analysts say, stocks remain appealing for many investors because interest rates are so low, making them more attractive than other kinds of assets, such as bonds.
“Stocks are a forward-looking mechanism. They don’t care about what is happening right now or what happened in the past,” said Ryan Detrick, chief market strategist for LPL Financial. “So much of why stocks have done so well this year is looking ahead to a really significant economic bounce in 2021 as the economy opens up due to the vaccines.”
As the extent of the coronavirus became clear in March, investors sent stocks tumbling 34 percent, a bear market. But it turned out to be the shortest downturn in U.S. history. Since the U.S. stock market bottomed on March 23, the S&P 500 has risen 68 percent, shattering all-time records along the way. The rebound reflects Wall Street’s optimism about 2021, but it also underscores the disconnect between the stock market’s wild success and struggling American households.
“The markets are dominated by the folks who are in the upper echelons. They don’t feel any pain. They read about it, but they don’t experience it,” said David Kotok, founder of Cumberland Advisors. “What they do experience is the flip side: We have had very substantial productivity gains with Zoom and other daily life efficiencies.”
President Donald Trump has repeatedly heralded the gains, tweeting nearly 50 times about the stock market “up big” in 2020 and predicting a “big crash” if Joe Biden won the presidential election. In contrast, Biden and his team, including Janet L. Yellen, his nominee for treasury secretary, stressed that “the stock market is not the economy.”
By the summer, the recession was largely over for the rich. The workfrom-home crowd kept their jobs and experienced a major savings boost as they spent less on dining out, travel and entertainment.