Nearly one year since the novel coronavirus was first detected in Wuhan, China, so much has changed. The roller coaster ride of events in 2020 has left some areas better off, but many continue to struggle as the world pushes forward producing and distributing vaccines. As encouraging as the most recent vaccine data is, there is still a long road before we can expect it to have a significant impact on the spread of COVID. In the meantime, we must remain vigilant so we don't trip over the finish line.The Race Continues
Think of COVID as the Indianapolis 500. We just finished lap 190 of 200. Our tires are worn and we are running out of fuel. Can we make it to the finish line without a pit stop? COVID vaccines are on the way, but it will take time to produce, distribute, and vaccinate a large enough swath of people to stop the spread. At the same time, the virus is spreading at the fastest pace yet, and hospitals are hitting capacity constraints. With the finish line in our sights, it is easy to want to push through our current troubles, hoping that it soon won't matter. But we risk pushing it too far and crashing before the finish line.Market Reaction
Markets have responded well to news of the latest vaccine results. Not only are vaccines soon on the way, but the reported efficacy rates from the trials were much higher than expected. Economically, this is highly encouraging for many businesses that have struggled through this pandemic.
Not only have composite markets moved higher, but deep within the market landscape a rotation is occurring that suggests a broader business recovery is on the horizon. Stock prices of many cyclical businesses most hurt by the pandemic are going up - and at a faster rate than their peers. Small-cap stocks, value stocks, even international stocks are leading the market higher. These beaten up areas are finally showing leadership
as investors are betting on a widespread return to normalcy in the not-to-distant future. This is a good sign and we hope it continues, but we still have to make it safely to the COVID finish line. Economic Activity
While U.S. stock markets have surpassed their pre-pandemic peaks, the economy has not. Make no mistake the economic recovery is occurring, but it is happening much slower. This is not unusual; remember, markets are forward-looking. However, markets are currently pricing in a strong economic recovery and anything to the contrary leaves markets vulnerable to a pullback.
We continue to believe the third phase of the economic recovery (which we are currently in) will take time. The initial strong economic bounce back has occurred and now businesses and consumers are slowly returning to more normal patterns. As this occurs there are still far too many Americans struggling. With widespread vaccination still too far away, we expect more government stimulus in the months to come. This will add a little more fuel to the fire and buy time until we control COVID.
As 2020 comes to a close, the major theme this year is resilience. Faced with such uncertainty, the economy and markets have done all they can to keep moving forward. In many ways that is a great statement about the human race. Even through uncertainty we find a way to progress.
Benjamin W. Jones, CFP®, AIF®
CERTIFIED FINANCIAL PLANNER™
President, Chief Investment Officer, Principal