Thousands of people are still out of work, many restaurants and retail stores are fighting for their lives and the service industry may never be the same.
But the U.S. stock markets set records to finish 2020, despite volatility produced by the coronavirus pandemic. The S&P 500 Index is up about 70% from its March lows.
The market performance could be a sign that the economy will improve over the next six months. It also could just be a result of economic sectors being unequally represented, financial experts said.
In addition, not all Americans share in the wealth of the stock market. A pre-pandemic survey by Pew Research Center found 55% of working Americans had retirement accounts grounded in the stock market or other investment vehicles; only 35% had personal investments.
Mansco Perry, the executive director and chief investment officer of the Minnesota State Board of Investment, sees a story in the disconnect between the overall economy and the markets.
The markets have benefited from the stimulus provided by Congress and the Federal Reserve. Interest rates remain low, and during the mandated economic shutdowns this spring, public companies moved quickly to cut discretionary expenses and preserve their liquidity.
Plus, success isn’t spread evenly across the S&P 500. If you look at some of its sectors there are some still suffering.
“Energy is still awful, airlines are awful, real estate is awful, hotels awful. I mean, they’re all still down by double digits,” Perry said in early December during the Star Tribune’s annual Investors Roundtable.
The recession this year also was unlike any other, said David Royal, executive vice president and chief investment officer of Thrivent, in an interview this week.
It was not fueled by cyclical excesses, rapidly rising interest rates or systemic breakdowns that were hallmarks of past recessions. The economy was in relatively good shape at the start of the year, and investors were generally bullish about the year ahead, he said.
“We just voluntarily shut down the economy in the interest of public health,” Royal said.
So the recovery doesn’t follow patterns of the past either, partly because of the way initial governmental relief was targeted.
“There will be times when there seems to be a disconnect because the market is looking at where things are going to be six months or a year from now — particularly in a situation like this where pre-vaccine people are still hurting right now,” Royal said. “But yet we can see light at the end of the tunnel so the market is pricing in that light at the end of the tunnel. But people are looking at this week’s paycheck and saying this isn’t what I’d like.”
So the stock market gained points and optimism on each new vaccine development and each new federal stimulus announcement.
However, a September Pew report found that 46% of working lower-income Americans had trouble paying bills since the pandemic hit the U.S. And 4 in 10 workers evaluate the economy on wages, availability of jobs and the cost of health care, while only a quarter look to the stock market’s health, last year’s Pew survey found.
Unemployment numbers show jobs being added back since record low unemployment levels in the spring but a deeper look into the numbers show Main Street continues to struggle. The number of new unemployment claims and reactivated accounts in Minnesota have started climbing again in October and November. Some were due to seasonality, but claims from service industries rose too even before restrictions were tightened again for Minnesota’s bars, restaurants and gyms.
