2020 is a year almost all were glad to say goodbye to. However, most investors felt quite the opposite as the U.S. financial markets hit all-time highs: the S&P 500 advanced almost 17% and the NASDAQ, led by the FANGM stocks, returned an astonishing 44%. On balance, we believe a more bullish outcome is likely for 2021 as the markets by definition are forward, rather than backwards, looking. Analysts see substantial upside to services spending over coming quarters for the areas that were most severely impacted by COVID such as dining, recreation, transportation, and tourism. Thus, higher growth should see these areas return to more normalized levels by year-end.

With the stock market having rebounded sharply from its March meltdown, the S&P is now up a staggering 55% from its Spring lows. While the world continues to battle the COVID pandemic with the hopes of a vaccine or herd immunity continuing to be pushed back, the Federal Reserve has delivered massive monetary accommodation in support of the struggling U.S. economy. In the process, our central bank increased its balance sheet above $7 trillion at the end of Q3.

To the surprise of almost everyone, especially as it occurred in the face of a global pandemic which in turn drove a global economic lockdown, the S&P 500 produced its best quarterly return since the 4th quarter of 1987 with a gain of 20.5%. This astounding performance came in the face of U.S. unemployment climbing by an unprecedented 11 percentage points in less than 6 weeks as 30 million Americans became immediately and unexpectedly unemployed as state and local governments shutdown local economies in an effort to rein in the rapidly spreading COVID-19 pandemic.

As we started 2020, the prognosis for the global economy was solid. Little noticed though was news reports starting to come out of the Chinese city of Wuhan about a new flulike disease. Oh, how the world has changed in a mere 3 months….

In 2019, we saw stocks and bonds stage an extraordinary run with the S&P 500 having its best year since 1997. Together, stocks and bonds had their biggest simultaneous gains in more than two decades. The market was up slightly more than 30% with the Information Technology sector showing an enormous re-bound from its 4Q2019 meltdown as the sector surged by more than 50% for the year.