Economic Recovery and Market Outlook in a Post-Election World

By Patrick Catania, Industry Consultant

With the 2020 election behind us, it is time to take a fresh look at the economy. There are several factors which have drastically changed in a period of just a few weeks, all of which will heavily impact the economy and our personal financial prospects in the coming months, in my opinion. The most important recent event has been the new administration’s focus on defeating the COVID-19 pandemic, coupled with the release of new vaccines. While there is still a major logistical challenge to get the vaccines into the arms of millions of Americans, the first 30 days of the Biden administration have given both the market and most Americans reason to cheer. The major market indexes have rebounded to recover pre-election losses and some have reached all-time record highs¹.

As of the last week of January, we started to see daily declines in COVID-19 hospitalizations, new infections, and deaths². While still too early to make any claims of “rounding the corner” we have clearly started to see improvement. The prospect of beating the pandemic is possibly the most important single factor to impact the overall economy near term. Yes, we have seen improving manufacturing numbers, and better earnings than expected for many businesses reporting in the last several weeks; however the pandemic looms large over employment data (continuing uptick in new applications for unemployment benefits) and we still believe additional Congressional action for pandemic relief is warranted.

The pandemic relief bill will add a much-needed boost to consumer spending which in turn will spill over to small businesses, many of which are on the brink of collapse. Small businesses are often described as “the backbone of the overall economy;” if we revitalize small business in tandem with the corporate earnings improvements we are witnessing, the economy can continue its robust recovery.

According to the U.S. Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 4.0% in the fourth quarter of 2020, reflecting both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the COVID-19 pandemic, including new restrictions and closures that took effect in some areas of the United States. In the third quarter, real GDP increased 33.4%. GDP is an important indicator of economic health, but we need to look for a return to steady growth as opposed to the erratic swings we have seen because of the pandemic. The outlook by BEA is for more steady GDP growth into 2021.

It is important to note the recent speculative activity in certain stocks, for example Gamestop and AMC Theaters. There are scores of explanations and theories about the causes of the volatile market activity of these and other stocks which have been in the limelight lately. We continue to believe that a strategic, systematic approach to equity investing is more likely to lead to long-term success than chasing the latest market trend. There are many sources of good and useful information on the stock market and on personal investing. A conversation with BCU Wealth Advisors is a very good place to start, whether you want to discuss your current investments, or if you are considering investing for the first time.

About the Author:
Patrick Catania holds undergraduate and graduate degrees in accountancy and international business. With more than 40 years experience in both foreign and domestic financial markets, he advises clients on current trends and developments on an ongoing basis.