2020 was a year no one could make up. As the year ends, what are investors looking towards in 2021? All hinges on the speed and success of Operation Warp Speed’s vaccination efforts. It will probably take most of 2021 to roll out the vaccine to nearly all adults but giving priority to elderly and at-risk patients should help speed up a return to normal. Approximately 54 million people in the U.S. are over the age of 65. Should the vaccine be distributed to this group quickly, as currently planned, hospitalization and death rates are likely to plunge, even if the virus is still spreading among the unvaccinated.
In this scenario of speedy vaccination of those most at-risk, the benefits of reopening are likely to outweigh the devastating economic and social impact of lockdowns. A return to full, unrestricted capacity in public spaces might not be realistic soon. But investors and the public have reason to hope that markedly better days could arrive by the spring.
Barring a major hiccup in Operation Warp Speed, focus will shift to what the post-COVID world looks like. Which trends accelerated or created by COVID will continue and which ones will fade? Should interest rates remain low, housing is expected to be strong due to extremely low supply and demographic tailwinds. Consumer spending is likely to remain robust thanks to historically low debt levels and pent-up demand for categories like travel and out-of-home entertainment.
Some of the hardest hit industries in 2020 now face high debt levels, which is likely to slow their recovery, and create a drag on private investment. US manufacturing weathered 2020 much better than past recessions, supported by strong consumer spending on goods. A lower US dollar going into 2021 should further support US manufacturers. The Federal Reserve Bank has maintained an accommodative forward guidance position; they will continue to use monetary policy tools to stimulate the economy until inflation is exceeding 2% and the economy achieves full employment. This supportive monetary policy stance has typically been positive for financial assets.
If we are to learn anything from 2020, it is that conditions can change quickly and drastically, but investors who are courageous in tough times are rewarded in the long run. Thank you for your support, encouragement and trust the past year. We are confident grit and ingenuity will triumph over the virus in 2021!