The world might be waiting on a Covid-19 vaccine, but thanks to policy booster shots, the stock market ended 2020 seeming to be largely immune from the contagion that still threatens Main Street businesses.
It might be hard to recall now, but 2020 started off with an economy full of potential: The Dow Jones Industrial Average was on track to break through the 30,000 threshold and the unemployment rate fell to 3.5 percent — the lowest in more than half a century. But things were already starting to unravel as an ominous viral pneumonia worked its way around the globe.
The Dow closed at a record high of 29,551 on Feb. 12 — then the patient took a turn for the worse. On March 9, 12, 16 and 18, circuit breakers designed to halt trading if the S&P 500 dropped by more than 7 percent kicked in when markets plunged. The market hit its nadir on March 23, with the S&P closing just above 2,237 and the Dow Jones a fraction below 18,592.
The Federal Reserve issued a flurry of announcements detailing emergency measures it was undertaking to backstop a number of behind-the-scenes markets, pledging to buy bonds and keep interest rates near zero, as an event that began as a public health crisis threatened to metastasize into a financial crisis.
On March 27, President Donald Trump signed into law the $2.2 trillion CARES Act, a rare act of bipartisan Congressional collaboration that provided enhanced unemployment insurance payments, forbearance on debts, suspensions of foreclosures and evictions, loans and grants for small businesses and payments of up to $1,200 for individual Americans.
The enormous, multitrillion-dollar scope of the rescue efforts along with the speed of implementation steadied the economic underpinnings of the market, and assisted in calming investors.
“I think the original bailout had a huge impact on the market. I believe without that package, we would not have bounced back,” said Joseph Heider, president of Cirrus Wealth Management.
In the ensuing months, a sharp — and for many, maddening — bifurcation took place as Covid-19 swept through the country in waves of mounting severity. The stock market clawed back its early-2020 gains and more, with the Dow Jones soaring above 30,000 for the first time in November.
On the ground, however, the economic picture looked far less celebratory for millions of American families. “There’s definitely a difference between what’s happening in the market and what’s happening in the real economy,” said Charlie Ripley, portfolio manager and senior investment strategist at Allianz Investment Management.
The unemployment rate receded from its April peak of 14.7 percent, but remained elevated, particularly for Black and Latino workers, whose November unemployment rates were 10.3 percent and 8.4 percent, respectively.
Even as the personal savings rate soared, bolstered by expanded unemployment benefits, forbearance programs and a sharp contraction in the service economy due to shutdowns, half of American families lost income as a result of the pandemic. More than two in five of those had not recovered that lost income as of December, according to a Bankrate.com survey. The losses were concentrated among the poorest Americans, who also anticipated the impact of longest duration: 41 percent of respondents with household income below $40,000 said their income would either take more than a year to recover, or would never recover at all.
“I think people were really shocked that the stock market recovered so well while the economy was doing so badly. But capital markets are a very cold, emotionless thing.”
Mitchell Goldberg, president of ClientFirst Strategy, said technical features of the way the major stock indices are designed accounts for much of the baffling divide between Wall Street and Main Street.
“The way the market mechanics work, the S&P in particular, is designed to show the performance of the biggest stocks, not to reflect the performance of the economy,” he said. Both the S&P and the tech-heavy Nasdaq are market-cap weighted, meaning that the bigger the company, the more impact its stock value fluctuations have on the performance of the index as a whole.
There were a couple of additional factors driving stocks higher in 2020. Goldberg credited the introduction of fractional shares and commission-free trading platforms like Robinhood with generating interest among a new, often younger crop of retail investors. The Federal Reserve’s interventions also kept fixed-income returns very low. Investors — whether big institutions like pension funds or just workers accruing retirement nest eggs in IRAs — had few choices other than equities to seek out meaningful returns.
As 2020 drew to a close, investors had two new reasons to breathe a sigh of relief: Certainty about the outcome of the presidential election, and good news on the Cover-19 vaccine front. The stock market always looks forward, and analysts said this is driving loftier valuations — even as politicians like President-elect Joe Biden and public health experts warn of a grim winter for the country.
Goldberg acknowledged that this disconnect can be frustrating, even alienating for the many Americans wondering what happened to their jobs, their savings accounts and their financial security.
“I think people were really shocked, and a lot of people were somewhat angry that the stock market recovered so well while the economy was doing so badly,” he said. “Capital markets are a very cold, emotionless thing.”
Taiwan economy seen growing 3.61% in fourth quarter on boost from exports: Reuters poll – The Guardian
TAIPEI (Reuters) – Taiwan’s economy is expected to have expanded 3.61% year-on-year in the fourth quarter, a Reuters poll showed, as the export-dependent island continued to shake off the coronavirus jolt with a return of strong shipments and consumer confidence.
The trade-dependent economy grew 3.92% in the third quarter from a year earlier, in a solid rebound from a 0.58% contraction in the second quarter.
Taiwan, a key hub in the global technology supply chain for tech giants such as Apple Inc, is expected to have posted slightly slower gross domestic product (GDP) growth of 3.61% on year in October-December, according to the poll of 14 economists.
Predications varied widely from growth of 2.1% to as high as 6.83%.
Exports in 2020 rose 4.9% to $345.28 billion, a record high by value for a single year.
In December, Taiwan’s central bank revised up its growth outlook for this year.
It raised its 2020 forecast for GDP growth to 2.58% from 1.6% predicted in September, and projected 2021 growth at 3.68%, compared with 3.28% seen at its last quarterly meeting.
Taiwan’s exports have benefited from the work-and-study from home trend around the world, which has boosted demand for laptops, tablets and other electronics made with components supplied by firms like Taiwan Semiconductor Manufacturing Co Ltd (TSMC).
Taiwan’s largest trading partner China registered faster-than-expected economic growth in the fourth quarter of last year, with GDP up 6.5% year-on-year.
Taiwan’s preliminary fourth-quarter figures will be released on Friday. Revised figures, including details and government forecasts, will be published about three weeks later.
(Poll compiled by Carol Lee; Reporting by Ben Blanchard; Editing by Shri Navaratnam)
New coronavirus variants pose major risk to the global economy, IMF warns – CTV News
The pandemic could slam the brakes on a global economic turnaround this year despite mass vaccination programs and unprecedented levels of stimulus, according to the International Monetary Fund.
The IMF expects the global economy to grow by 5.5% this year, it said on Tuesday, or 0.3 percentage points faster than its previous forecast in October. The upgrade reflects “expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies,” the group said. (The IMF estimates that the world economy shrank by 3.5% in 2020, its biggest peacetime contraction since the Great Depression.)
But it also warned that surging infections in late 2020, renewed lockdowns and logistical problems with vaccine distribution could hamstring growth. If new variants of the coronavirus also prove difficult to contain, global output this year would be 0.75% less than the IMF expects.
Looking further ahead, the IMF expects global growth to slow to 4.2% in 2022.
“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens,” Gita Gopinath, chief economist of the IMF, said in a blog post.
Some countries will recover more quickly than others. China, which was the only major economy to grow in 2020, is forecast to achieve growth of 8.1% this year. The United States should emerge from its deep slump to expand by 5.1%, a pace that’s 2 percentage points faster than the IMF predicted in October.
The 19 countries that use the euro are expected to see growth of 4.2% in 2021. The United Kingdom, which endured a 10% contraction last year as it left the European Union and is now battling a new coronavirus variant, would rebound with relatively modest growth of 4.5%.
“The wide divergence reflects to an important extent differences across countries in behavioral and public health responses to infections, flexibility and adaptability of economic activity to low mobility, preexisting trends, and structural rigidities entering the crisis,” the IMF said.
The pandemic is causing “exceptional uncertainty,” according to the IMF.
“Although new restrictions following the surge in infections (particularly in Europe) suggest growth could be weaker than projected in early 2021, other factors pull the distribution of risks in the opposite direction,” the IMF said.
If the vaccine distribution and efficacy go smoothly, for example, output could exceed expectations by as much as 1% globally, with companies hiring and expanding capacity in anticipation of rising demand.
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