Many things have changed in 2020, and according to the Federal Reserve Chairman Jerome Powell, we can add the Economy to the list. We have seen a booming economy come to a screeching halt, and unfortunately, it will not go back by just flicking a switch.
Federal Reserve on the new Economy
The Federal Reserve Chair made it clear this week that the recovery from the economic shutdowns and constant battle with COVID-19 will result in a very long road in recovery. He also did want to make it clear that we are recovering, but we are recovering to a new economy.
- Technology – The pandemic has pushed our society into overdrive to utilize technology, which has driven technological advancements too! While the utilization of technology is a positive thing over the long term, it does create short-term disruption and causes markets to adjust to a new normal.
- Change in Habits – Things that will be affected such as business travel, offices, employees, coffee stores, lunch stables, and many more. Shifting the habits overnight of millions of workers and changing where people live and work will significantly impact the Economy.
- Inequality – COVID-19 has unfortunately placed most of its burden on lower-paid workers that require face-to-face interactions, such as retail, hospitality, or restaurant workers. Women are also significantly affected as the primary to watch their children, with a lack of schooling or daycare this has resulted in difficult decisions that impact employment.
- Lack of Second Stimulus Bill – While there have been many discussions about inequality, there are facts that the larger the gap between the rich and poor, the more it will hold back an economy. The pandemic is adding to this challenge and lawmakers as well as central bankers are realizing is that these groups will need another stimulus bill to survive.
Powell has stated that the best thing for the country to do is to wear a mask! Getting the Economy back is the single best thing that can happen, and wearing a mask will help achieve that. Vaccines are encouraging but are still months away from rolling out and will take even more time to gain public acceptance.
In terms of good/bad news, during COVID-19, individuals were allowed to tap into 410k plans to help keep them afloat. It appears only about 5% of the 401k plan users withdrew funds. This means that 95% of individuals did not touch or impact their retirements!
Now the bad news about the 401k data is that many of the laid-off and most affected people are most likely not eligible nor have a 401k plan; thus, the data is probably less exciting.
COVID cases on the rise
The US is far surpassing the rest of the world in COVID-19 cases again. Unfortunately, there does not seem to be a peak/top in sight yet. This, along with local and state governments putting restrictions back in place, will strain the Economy again.
The US is not excelling at managing COVID cases compared to the rest of the world, but how has the US done over time? Probably not a massive surprise that the US has not done that well over time either. The US has gotten the virus down twice, but both times it failed to keep the trend.
How deadly is the virus at this time? In the US, the mortality rate stands at 2.3%. This ranks the US in the middle of the pack for mortality.
From a hospitalization perspective, the US is hitting an all-time high, putting a strain on the healthcare system again. This could also cause a rise in the mortality rate.
So what does this all mean?
It means to hold on for a wild ride! The stock market reacts to breaking news in real-time but it prices in the future. Right now and every time a positive news bite comes out about a vaccine, the market will run higher! The market is looking at the light at the end of the tunnel. But, there will be a pullback in occasionally between the good news as well as a shift from growth to value and back depending on the type of news. A stimulus bill would be another bull driver, but that is uncertain unless the Democrats win control of the senate.
So what should I do? If you’re not sure, ask a financial adviser which I am not one! What I plan to do, though, is to put some of my money to work that isn’t already invested and continue to focus on value stocks. I can share what I am invested in if you would like.
The vaccine is not the silver bullet many hoped for but it at least helping to provide a timeline for when all of this will be over which is just the encouragement people, as well as companies, need to help plan for the future. As such investors are working to get in on that future and capitalize on the recovery.
The safest way to play it is just to invest in indexed ETFs but if you want to have more control make sure your ready for the emotional strain that comes with that! I think the market will put COVID in the rearview mirror over the next year as long as the vaccine is effective and distributed.
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