Who would have expected that after the longest bull market run from 2009 to 2020, our bear market would last just 33 days? A pandemic was certainly not how we expected this run to end. Furthermore, who would have guessed that the last 12 months, which included that 34% drop, would have an annual return of 24%, as measured by the S&P 500 Index?
The past year has seen an all-time high for the S&P on Feb. 19, 2020, followed by the market low on March 23, 2020, followed by more all-time high closes, including those on Aug. 18, Sept. 2, and on Feb. 12, 2021. This has most average investors asking, “Did we have a recession?” in the same breath that they say, “Well, with the economy in a recession right now…”
First, let’s define a recession. The concept of two quarters of negative gross domestic product (GDP) growth is more a rule of thumb. A recession is a period of contraction in employment, trade, income, and production. It is “diminishing” activity—not “diminished.” It’s likely that economists may eventually call our bear market in March 2020 the shortest-lived recession; however, we may not know for a while, as the National Bureau of Economic Research—the authority on dating economic cycles—tries to be accurate, not timely.
Chances are we are in a recovery phase. Of course, we’ll know for sure once we’re well into the next phase. A recovery is generally marked by gains and exceeds peak employment and output levels, plus abnormally high levels of growth in GDP, employment, corporate profits, as well as other indicators.
Now, if we’re in a recovery phase, do we need more stimulus? With our new political administration, the debate seems to be not whether we should stimulate the economy more but how much more we should stimulate the economy. On Feb. 27, 2021, the House voted to approve President Joe Biden’s $1.9 trillion pandemic aid package, which is considered a major step toward relieving many Americans from the devastating fallout from the pandemic.
However, the bill contains several provisions that are not related to COVID-19, which could likely be stripped out by the Senate. Right now, the bill calls for direct aid to small businesses, $1,400 direct checks to individuals earning less than $75,000 a year and married couples earning less than $150,000, an increase in the child tax credit, direct funding to state and local governments, funding for schools and more money for vaccine distribution.
However, studies from Opportunity Insights, a non-partisan, not-for-profit organization located at Harvard University, have shown that households earning more than $78,000 tend to save the majority of their stimulus, estimating that they will spend only $105 of the proposed $1,400 stimulus. We tend to agree. For many investors, this is found money that they can invest. The stock market’s valuations seem to reflect the excess cash consumers have right now. And on that notion, we believe the market will continue to go up.
If you have questions on how our current economic conditions may affect you, the experts at Henssler Financial will be glad to help:
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