This end-of-year market review on the financial situation and predictions for 2021 is going to look at little different. For one, I’m writing this at the end of 2021 which means it would be cheating for me to make predictions for the year already past. However, I will make an attempt to think back to the end of 2020 and describe what I thought was going to happen, even thought I know what did happen.
The Year in Review 2020
The first thing to look at is my predictions for 2020 from the previous year’s post to see how well things turned out. Of course, I had no inkling of the black swan event of Covid-19 that was going to happen in March of that year. But there were some interesting trends starting in 2019 that would have made for a very different year had this pandemic not arrived.
One of my failures was the prediction that we would not get to Dow 36,000 in 2020. In fact, that milestone was achieved in November of 2020 after coming very close to it in February of 2020 before the pandemic hit. My reasoning at the time was that this would require a 20% growth rate in 12 months and I didn’t think that was possible. As we know, we had two years of 20%+ growth.
The 2020 Predictions
Looking back, absent the pandemic, my prediction was more associated with political influences as it was a presidential election year and the question was whether we would have more of the odd behaviour of the previous administration, or whether someone else would come into power. I predicted more volatility there, and indeed we saw that as the election grew closer. We saw a spike in May and a pullback in October as the November 2nd election day drew near. So I wasn’t too far off there.
The other aspect at the end of 2019 was a slowdown in the economy as we reached full employment and the market appeared to be heading for a short-term peak with flatness to follow.
Covid Changes Everything
In 2020 we saw a huge (30%) drop in the markets over a two-week period as news of Covid broke and countries started shutting down their economies as people were isolated at home with warnings not to go out except for critical needs. As this bottomed, the question was what would the recovery look like. Would it look like a V-shape and recover just as quickly as the market does with shock news like 9/11? Or would it stay flat and look like an L-shape? Or would it slowly go back up looking like a check-mark (tic-mark) or a Nike swoosh? Because of the continued uncertainty around the effects of the pandemic on the economy, it turned out to be a tic-mark-shaped recovery and the market had recovered back to its March starting point by August.
A Look Toward 2021
Here’s the part that is cheating, but I’ll try to remember how I felt at the end of 2020 and what I saw ahead for 2021.
One thing I remember is that once the election was over and Joe Biden was set to take over, I felt that the market would be less volatile with the majority of volatility attributed to market news and the success of vaccinations. It was a time when optimism was high that once we got the vaccines all rolled out (I was predicting by the end of 1H2021) that we would be back to our normal economy. I was also concerned by the amount of money that had been put into the economy during 2020 and how we would start to slow the accommodative measures put in place. Because of the amount of money put into individuals’ hands in 2020 I wasn’t sure how much of that would be saved and how much spent to understand if the economy would take off again. Clearly, a number of the service sectors were hurt and would not come back quickly. I thought that the 2H2021 would show those industries coming back and improving the small business economy.
Personally, I was looking forward to having my business improve as the opportunity to get out and market more would be possible. The year ahead, in 2021, looked to be one of opportunities and I looked forward to what it would bring.