State of the Economy and Markets
Quarter 4, 2021
While it is impossible to know the extent of the damage that will be caused by COVID-19, nor the amount of time it will take to return to normalcy, significant steps to try and thwart the spread of the virus, along with what has been a very proactive response from the Federal Reserve and central banks around the world should go a long way toward mitigating both.
The above is an excerpt from my very first State of the Economy and Markets, drafted near the end of March 2020. At the time, the world was reeling from the onset of COVID-19 and the World Health Organization had just declared a global pandemic. Here we are, 21 months later, and we still do not have a clear path to normalcy, nor do we know the extent of the damage. We do know that the number of deaths continues to rise and that the economy is still very much in a state of flux. We also know that new variants are surfacing and that everyone must continue to be vigilant about protecting themselves, their loved ones, and others from this potentially life-threatening virus.
The global economy still faces many headwinds, such as supply-chain disruptions, labor shortages, and elevated inflation, to name a few. On the bright side, increasing vaccination numbers, low interest rates, pent-up demand, and supportive monetary policy continue to move the economy in the right direction. Setbacks are sure to occur along the way, but we expect the global economic recovery to extend through 2022 and for U.S. GDP growth to remain strong.
The U.S. stock markets have shown tremendous resiliency after plummeting some 30 percent between mid-February and late March 2020. The broader markets had already exceeded their pre-pandemic highs by late 2020 and have continued that impressive run as we near year-end 2021. Through December 22, 2021, the S&P 500 Index is up just over 25 percent, with the Dow Jones Industrial Average up approximately 17 percent and the NASDAQ approaching 21 percent.
In summary, we believe that the U.S. economy was sound heading into the pandemic and that it will continue to recover from what was a short, but deep, recession in 2020. We expect the Federal Reserve to remain accommodative but to continue its tapering and look to initiate interest rate increases sometime during 2022. We remain bullish on equities for 2022 but anticipate continued volatility as each day seems to bring something new to the table for investors to digest.
We continue to recommend that our customers stay invested and maintain their appropriate asset allocations. We know that increased volatility can be unnerving for many, but we maintain our conviction that investing is much more like a marathon than a sprint. Reacting to the daily headlines or short-term fluctuations in the stock markets generally results in adverse consequences.
As always, your relationship team is here to meet with you in whichever way is most comfortable for you. We value your relationship and the confidence you have placed in Adirondack Wealth Management by choosing us as your financial partner.
On behalf of everyone at Adirondack Wealth Management we hope you and your families had a wonderful holiday season. We look forward to better times ahead and we can’t wait to see you in 2022.
Senior Vice President
Wealth Management Director