State of the Economy and Markets
Quarter 1, 2021
Just over a year ago—March 11, 2020 to be exact—the World Health Organization declared a global pandemic due to the outbreak of COVID-19. As of March 24, 2021, more than 124 million cases have been confirmed and over 2.7 million deaths attributed to COVID-19, making it one of the deadliest pandemics in history. Significant social and economic disruption has occurred globally, resulting in the biggest global recession since the Great Depression. Large segments of the U.S. economy were shut down entirely, with some not having been able to reopen yet.
Much has been done globally to provide fiscal stimulus to the economy and relief to those most affected by the pandemic. Here in the United States, the Federal Reserve Board reduced short-term interest rates to nearly zero, cutting rates not once but twice in March 2020: the first time by 0.50% and the second time by 1.00%. The CARES Act, Paycheck Protection Program, and, most recently, President Biden’s $1.9 trillion stimulus bill have all contributed to a stabilizing U.S. economy and hopes of a more robust recovery later this year. In total, an unprecedented $5.4 trillion in stimulus has been injected into the U.S. economy since March 2020.
Even more significant than all of the above is that just one year removed from the discovery of this rapidly spread and potentially life-threatening virus is the approval of three COVID-19 vaccines and the increasing availability to the broader population. The time, money, and efforts of those involved in making this possible in such a short period of time is nothing short of remarkable. We are fortunate to have such brilliant, high-quality scientists and medical professionals at work worldwide. Without them, none of this would be possible.
In the weeks following the outbreak of the virus, the S&P 500 Index fell 34% from a then-record high of 3,386. Just one year removed, the S&P 500 Index is approaching 4,000, up 75% from the March 23, 2020, lows. While drops like this one and the one experienced in 2008 do not occur very often, markets cannot go up forever without interruption. In fact, corrections of 10% occur every 16 to 18 months (the average lasting only around 40 days) and 20% drops happen on average every seven years. The lessons learned from these types of market disruptions are valuable and reinforce the importance of staying true to your appropriate asset allocation and most importantly not panicking during times of despair.
The prospects for a gradual return to normalcy, a stimulus-driven economic recovery, and the widespread distribution of the vaccines continue to fuel the broader stock markets as we head into the second quarter of 2021. Optimism remains high, and that should bode well for stocks in the near-term. However, plenty of uncertainty remains as fears of higher interest rates, higher inflation, and increased taxes are making their way into the daily headlines on a more frequent basis. As these potential threats continue to unfold, we will keep you updated, but as of now we do not view any of them as near-term threats to what appears to be an otherwise healthy climate for stocks.
As we are now officially into spring, and temperatures here in the Northeast are trending upward, we have reason to be optimistic. Nearly 14% of Americans have been fully vaccinated. The White House says that the U.S. will have enough vaccine supply to cover every adult by the end of May. Although it will take longer to administer these vaccines, it appears the light at the end of the tunnel is getting brighter every day. We wish you and those closest to you a safe and healthy 2021 as we try to put this past year behind us and look forward to better days ahead.
As always, your relationship team is here to meet with you in person, over the telephone, or even via video conferencing if you would prefer. We look forward to a time when getting together in-person becomes the norm once again. We value your relationship and the confidence you have placed in Adirondack Wealth Management by choosing us as your financial partner.
Senior Vice President
Wealth Management Director