The market won’t miraculously recover because it’s no longer 2020, so while it’s time to begin preparing clients for the long haul into this year, knowing what to watch still provides a glimmer of hope and equips clients with the ability to spot land when they feel like they’re adrift in an ocean of uncertainty.
Last spring and summer saw relatively positive economic growth, but advisors can remind their clients that this was for a number of reasons that no longer apply: lockdown restrictions eased, the $3 trillion stimulus package was passed and economic impact payments were disbursed, and people were out and about spending money. However, these are the same reasons we’re now seeing a downturn.
While you might think pandemic-related management (by the government, workplaces, and individuals) might be better managed after having almost a full year to acclimate, this is unfortunately not the case due to a wide range of reasons. Plus, the often-stark differences between Wall Street and Main Street mean that, when talking about the economy (and recovery), advisors and clients may be having different conversations. As we’ve mentioned before, volatile markets are the new normal, but while both advisors and investors are going to have to settle in for the long haul, it doesn’t mean everyone is lost in a data-less sea of pure chaos. That said, it’s still easy to feel helpless, lost, or confused, so to help clients stay emotionally grounded, here are a few quick explanations for market volatility advisors can point to, which also double as topics serving as harbingers of whatever comes next, too.
In terms of factors that set the table, covid-related responses and restrictions are determined on a state-by-state basis, and can vary between individual cities and counties, so there’s no one unified approach as you might see in other countries. While one state may require masks, another state bordering it may not; similarly, while there may be no state-wide mandate, local mandates may nevertheless be implemented. This lack of cohesion means that even in areas with strict requirements, the virus may still spread relatively quickly because of the minimal safety protocols in neighboring areas. Additionally, since the spring, government sponsored pandemic-related relief efforts have been relatively minimal, and the singular cash payment stimulus checks barely scratched the surface of American’s financial need. With millions of employees returning to work out of financial necessity (in part due to lack of financial relief from the government), and holiday travel, the chance of infection rose, and you now have a perfect storm for viral spread and economic disorder.
Knowing some of the indicators that led us here then begs the question: what does herald economic recovery? If not a literal dove with an olive branch, what signs should investors look to in order to determine when we’re really, truly in an upswing? As ever, there’s no one, singular thing that is the beacon signaling that everything will be okay (if only!), but there are a few factors worth watching. Most pressingly, spikes in cases related to holiday travel, and potentially that related to the recent attack on the capitol and protests planned on inauguration day, may determine further lockdown measures. We’ve seen post-holiday spikes and may very well see another in February; indoor gatherings during the frigid winter months are already breaking records and again overwhelming hospitals, and the results are morbid. A second stimulus package and its contents set the tone by taking us out of the protracted “will they won’t they” stimulus limbo, even if the contents didn’t always measure up to the wide-ranging expectations of the general public (or even the president). Regardless of content, if and when further stimulus measures are passed, they will at least let both private citizens and businesses have a dependable certainty they can account for when planning ahead. On that front, things are looking good; President-Elect Biden announced plans for a $1.9 trillion stimulus package that includes “more than $400 billion to combat the pandemic directly, including money to accelerate vaccine deployment and to safely reopen most schools within 100 days. Another $350 billion would help state and local governments bridge budget shortfalls…[and] $1,400 direct payments to individuals, more generous unemployment benefits, federally mandated paid leave for workers and large subsidies for child care costs.” Vaccines, once they are available to the wider public, are another factor; once the public is vaccinated, we can begin to get back on track both personally and economically. However, a vaccine is only as good as those who take it, so it’s not just vaccine availability that advisors and their clients should be watching, but rates of inoculation as well.
It has been a truly exhausting year, and unfortunately the one thing people don’t want to hear is that things don’t just end in 2020. Sure, the future is bright, but advisors are here to make sure that caution isn’t thrown to the wind just because the date changed. The market won’t miraculously recover because it’s no longer 2020, so while it’s time to begin preparing clients for the long haul into this year, knowing what to watch still provides a glimmer of hope and equips clients with the ability to spot land when they feel like they’re adrift in an ocean of uncertainty.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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