Market Pulse: 4th quarter review, Part 1
Special to the Tribune
The market had a strong fourth quarter with the S&P 500 gaining 12% even as investors rotated away from the “big five” U.S. technology stocks that dominated performance through most of the year.
The market’s tendency to look forward outweighed the unfortunate surge in COVID-19 cases. Investors saw better days ahead.
While Wall Street anticipated better days, the story was different for Main Street. A legacy of 2020 was extreme inequality. The rich got richer as stocks and home prices soared, but the poor were hit the hardest and haven’t recovered. This is why economists call this a “K” shaped recovery.
The unemployment rate for blacks is nearly double that of Whites. Those without a school degree are unemployed at more than twice the race of those with a college degree. Meanwhile, those making more than $60,000 a year saw more jobs in November than before the pandemic. This type of inequality is unsustainable and often leads to social unrest.
But there is light at the end of the tunnel. When the virus fades later this year, people will be more comfortable resuming life the way it was, traveling, eating out, and spending money. The economy will respond. GDP growth in the fourth quarter is expected to be an annualized 8-11% and for all of this year 5 or 6%. Those are very good numbers.
The bull market has been relentless since the March low and shows no signs of topping out. Investors are buying almost every day for the same reason, i.e. optimism that economic growth will accelerate as people are vaccinated and we return to the pre-COVID days of faster growth and better profits. The recent relief package is also a tailwind.
The year ended with an upbeat outlook based as I’ve been saying in good part on the vaccine’s impact on economic growth. The only question is how much of this year’s good economic news is already baked in the cake. Quite a bit, I’m sure. But even so, I can’t help but come back to the fact that money has to go somewhere and the choices are few — stocks, income vehicles, gold, Treasurys, cash.
Eliminate all but stocks and at times bonds and income vehicles such as preferreds. Stocks are still the place to be.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.vomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article.Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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