So how does 2021 look? We will shamelessly borrow here from James Carville’s advice to Bill Clinton before the 1992 election, “It’s the Economy, stupid.” Today it’s all about COVID-19.
Right now, we appear to be in Round Two of the outbreak. Things are getting worse, as they are also in Europe. The good news, however, is a vaccine is on the way. The bad news is it probably won’t be here in volume before the second half of 2021 and we don’t know how effective it will be, how long the effectiveness will last and maybe most important, how many people will be willing to take it. Some estimates are that as many as 20%-30% of the public will refuse a vaccination.
We have not done a great job against the coronavirus. We have pointed out before that the U.S. is 4% of the world’s population but we have 25% of the world’s COVID-19 cases. Not a great record. But the government’s fiscal stimulus earlier this year and the Fed’s aggressive action lowering interest rates and backstopping the bond market stabilized the economy, and we could see Round Two of stimulus in 2021. This would be a positive.
Here are two other promising statistics. The savings rate has soared this year. It had been running at 7% before the pandemic, then jumped to 33% over the summer before settling back to 14%. Many people did not spend their stimulus checks but instead saved the money or paid down debt. This gives the economy financial firepower when consumer confidence returns.
A second statistic is that new business start-ups are soaring. You would think just the opposite what with the shutdowns and business losses. But growing start-ups bode well for the eventual economic recovery.
So, what about 2021? If you believe that coronavirus is close to under control and more stimulus is on the way, then the economy and the market can perform well in 2021. Otherwise it looks like 2021 will be a tough year, better than 2020 but certainly not ‘normal.’ We worry it may be closer to the latter than the former.