When we think about the roaring 20s, nearly a hundred years ago, we all think of a decade of growth and celebration! And there were really 2 reasons for that: The end of World War One and the end of the Spanish Flu Pandemic. While we don’t have the end of a major war, we are starting to see the end of the pandemic on the horizon and getting closer to herd immunity. But is that enough to kick off the roaring 20s for us again?
First, let’s consider this year so far. We had a solid first quarter: the S&P was up 6.2%, the Dow was up 6.8%, and the US lead the world according to the MSCI. Even the Russell 2000 was up 13% in a sign that small caps are recovering. The driver of much of this growth is the growing vaccine numbers- on April 21st, President Biden announced that over 200 million people have received at least one dose of a Covid vaccine.
With herd immunity on the horizon, and the likely lifting of restrictions this spring or summer, it’s no surprise to imagine that a lot of people will be traveling, making major purchases, and generally heading out and celebrating.
There does appear to be significant pent-up demand – certainly enough to return to normal, and maybe then some besides. The wherewithal to spend is certainly there. As of February, the savings rate in the US was about 13%- double the historical average! So, consumers do seem coiled for recovery, which would affect travel, leisure, housing, and many other sectors of the economy. People would be able to go to the movies, or a sporting event, or a concert – areas that have really suffered over the last year.
It’s also important to remember that the adoption and availability of new technology is part of what drove growth in the 1920s, and it could be the same in the 2020s. It’s probably fair to say that many technologies were increasing exponentially even a year ago, and the pandemic has accelerated not only their evolution, but their adoption. In addition to e-commerce of all sorts, look at technologies like digital communication, work from home, web conferences, artificial Intelligence, machine learning, and the acceptance of cloud computing. Necessity is the mother of innovation, and millions more people had to adapt new technologies, over the last year. And guess what? A lot of employees and employers seem to like these advancements.
Finally, there have been a lot of discussions about the so called ‘K’ shaped economy with some styles and sectors benefitting and some suffering. We have seen the tech sector pull back in recent months, and there’s been a shift to value as we see the recovery get under way. We might continue to see some market rotation toward cyclical value stocks, and after underperforming growth for some time we could see value stocks do better than growth this year, especially if interest rates rise.
So what does it all mean? It means that going forward, there are both opportunities and challenges for your portfolio. If you want to know if your portfolio is going to be in a position to take advantage of these trends, give us a call at 216-520-1711.
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