The U.S. stock market functions on speculation. The perceived future value of a particular industry can have a powerful effect on the national economy. That is to say that when enough people believe a sector is at the brink of growth, that hivemind can trigger a rising tide that lifts all ships. Finding the early signs of growth is the job of an investment advisor in Palm Beach. But what happens when a significant event influences the outlook for the entire economy?
If there’s one thing that can move the economy and stock market forward, it’s hope. This year, that hope is being presented in the form of COVID-19 vaccines. Economists and Wall Street analysts have long proclaimed that comprehensive economic recovery is not possible until we have contained the virus. The prospect of a wide distribution of effective vaccines and herd immunity by the end of the year has put recovery in our crosshairs. [1]
If you watched the news at all throughout the pandemic, you heard the horror stories about the countless businesses that had to close their doors permanently. With people stuck indoors, there was less income to go around for companies that relied on brick-and-mortar locations to generate revenue. This effect cascaded into an increase in the unemployment rate, decreased spending, and hesitancy on behalf of investors.
Not every industry suffered the same setbacks during the pandemic, however. Tech stocks experienced a massive surge as people saw themselves confined to their homes and had more time to spend online. Moreover, online purchases also grew, benefiting companies like Amazon, whose entire business model hinges on delivering goods to a home with limited human interaction.
If there is any silver lining about the economic fallout of the pandemic was that several countries saw what it meant for long-term financial stability and took action. To encourage spending, many central banks slashed interest rates, making borrowing easier.
Additionally, countries like the U.S. instituted a stimulus program to give the average person some financial breathing room to make necessary purchases and a little more security. These stimulus programs also enhanced unemployment benefits, providing much-needed support to those who found themselves without a job after a massive wave of business closures.
We are still not entirely through the crisis triggered by COVID-19. There are still scores of infections throughout the world, and the death counts keep rising. However, and fortunately, vaccines have been rolled out at unprecedented numbers. This has meant that people are starting to emerge from their self-imposed quarantines, businesses are re-opening, and money is flowing back into the economy.
Many economists expect that this re-opening of the economy will herald a surge in spending and a boom to several economic sectors. In fact, we’ve already begun to see the effects of the vaccine rollout in the major indexes – the Dow was up 3%, airlines up by 16% after a significant drop last year, and the S&P was up more than 14%.
For investment advisors in Palm Beach, this means that taking a long-term view on portfolios early on in the pandemic was still the most financially savvy option. Ultimately, individual stocks proved to be volatile when confronted with such a drastic change in the market. However, mutual funds, despite suffering losses, still demonstrated why they are the safer long-term investment. Today, many investors express optimism for the market in the coming months.
This hopeful sentiment was echoed by CNBC’s ever-enthusiastic “Mad Money” host, Jim Cramer. He recently proclaimed that the U.S. stock market would be poised for even greater heights if President Biden is successful in forging a plan to quickly and widely distribute the COVID vaccinations. [2]
Phil Orlando, Federated Hermes’ chief equity market strategist and one of Wall Street’s bullish market analysts, advocates a combination of vaccine rollout and additional fiscal stimulus. He believes one of the surefire ways to boost economic growth is to help lower-skilled unemployed people find work. He predicted that by July 4, the U.S. would be coronavirus-free, setting the stage for a “monster market year.” [3]
Review your investment portfolio and get your financial house in order. If you are due for improvement, it could be beneficial to get into the market when prices are low, often rebalance and take advantage of market dips for additional investment opportunities. As always, we are here to help guide you on the best way to meet your financial goals.
Unfortunately, European stocks continue to struggle despite market exuberance in the U.S. over a new presidential administration. Part of this concern may be that many EU countries have suffered setbacks due to subsequent and more virulent coronavirus strains.
As before, the U.S. continues to lag on the worst of the effects of the virus as they occur.[4] This foreshadowing makes it all the more critical that vaccines get into as many arms as possible in the next few months.
Market sectors that have suffered terribly because of calls for lockdowns and social distancing are likely to benefit the most from the widespread distribution of the COVID-19 vaccine. This includes the aviation and hospitality sectors, as well as the office and retail property market in Europe and the U.S. Of course, the opposite could be true: Pandemic beneficiaries could see a loss in revenues once people get out and about — for example, Amazon, Netflix, and Zoom Video.[5]
This shift means that investment advisors in Palm Beach could help their clients by encouraging them to pivot their portfolios to those markets primed to bounce back. Ultimately, this phenomenon might be a case of buying low at a limited risk with a high potential for returns.
When the stock market is undergoing a period of unprecedented change, it can be challenging to figure out where to place your money. Luckily, Legacy Financial Partners offers unique insights and guidance informed by decades of experience in finance. Get in touch with our team today to learn how we can help optimize your investments.
Content prepared by Kara Stefan Communications. Edited and Optimized by Digital Resource.
1 Robin Wigglesworth. Financial Times. Dec. 2, 2020. “The ‘everything rally’: vaccines prompt wave of market exuberance.” https://www.ft.com/content/d785632d-d9a0-45ae-ae57-7b98bb2fb8d6. Accessed Jan. 25, 2021.
2 Kevin Stankiewicz. CNBC. Jan. 20, 2021. “Jim Cramer says the stock market could ‘explode’ if Biden improves Covid vaccine rollout.” https://www.cnbc.com/2021/01/20/jim-cramer-stocks-could-explode-if-biden-improves-covid-vaccine-rollout.html?recirc=taboolainternal. Accessed Jan. 25, 2021.
3 Stephanie Landsman. CNBC. Jan. 20, 2021. “Covid-19 vaccines will end pandemic in the U.S. by early summer, Federated Hermes’ chief equity market strategist predicts.” https://www.cnbc.com/2021/01/20/covid-19-vaccines-will-end-pandemic-in-us-by-early-summer-federated.html. Accessed Jan. 25, 2021.
4 Jim Armitage. Evening Standard. Jan. 25, 2021. “FTSE 100 rises slightly as investors balance surging Wall Street with Covid worries.” https://www.standard.co.uk/business/ftse-100-rises-covid-joe-biden-quarantine-b900967.html. Accessed Jan. 25, 2021.
5 Sumathi Bala. CNBC. Nov. 23, 2020. “Hopes for a coronavirus vaccine are creating market winners – and losers.” https://www.cnbc.com/2020/11/23/investing-coronavirus-vaccine-creates-market-winners-and-losers-.html. Accessed Jan. 25, 2021.
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