A Year to Remember

(or Perhaps Forget)

January started off strong, carrying with it the momentum that 2019 had finished. And then news started coming out of China of a virus that was closing down a major industrial city called Wuhan.

Jeff Powell | Managing Partner, CIO Tweet

There are but a few waning days left in 2020. A year that none of us will ever forget and all but a few want to put in the rear-view mirror. I remember this time last year thinking of clever things to say about our upcoming year. I was hoping to joke about twenty-twenty, as in 20/20 vision, and tie it into our views of the markets. We were completing a great year in the market and expectations were strong for 2020.

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The markets gyrated for a little over a week, dropping about three percent during that time period, because investors feared a disruption in technology production could impact several large U.S. technology companies. No one feared this virus turning into the worldwide pandemic that we know today. Most experts believed this coronavirus would be contained just like SARS was contained in 2003, the Bird Flu in 2004, Swine Flu in 2009, MERS in 2012, Wild Poliovirus in 2014, Ebola in 2014, and the Zika virus in 2016. In each of these cases, there was a knee-jerk reaction, and then the markets quickly recovered their losses.  

The S&P 500 – March 4, 2019 – Feb 18, 2020

The S&P 500 Performance – March 4, 2019 – Feb 18, 2020
The markets peaked on February 19th, as investors had brushed aside the tidal wave that was heading straight for them. The first big drop in the markets was on February 24th, when it was confirmed over that weekend that SARS-CoV-2, or what we now abbreviate to COVID-19, had spread to thirty countries. All major indexes, including the Dow Jones, the S&P 500, and the NASDAQ went on a torrent drop, having the fastest 30% decline in market history.
The S&P 500 experienced a 33.9% drop in just twenty-three trading days, with just five of those days being up days for the index. The NASDAQ didn’t hit quite the same losses but still dropped over 28% during the same time period. But the Dow Jones took the biggest hit, dropping over 37%.
The NASDAQ Performance –Polaris Wealth
The Federal Reserve and the U.S. Treasury did everything in their power to come to the rescue, but it wasn’t until the U.S. Congress passed the CARES Act on March 24th that the markets stopped the waterfall drop and began to recover. Few at that time expected the type of recovery we have seen. As I write this month’s Polaris Perspective, the S&P 500 is up over 14% for the year. Unbelievable!!!
During the course of this year, we have seen the largest one quarter drop in U.S. GDP activity in our country’s history… Ever! We saw the largest drop in the Chicago Fed National Activity Index and the Leading Economic Index… Ever. We saw unemployment soar to 14%. We hadn’t seen a higher unemployment rate since 1937. And yet, in the face of all of this horrible economic data, the markets rose.
George Floyd’s death on May 25th fueled peaceful marches and sparked civil unrest in cities across our country, as cries for police brutality to end occurred. Hundreds of thousands of Americans participated in peaceful protests in hundreds of cities and towns throughout the country, risking their own lives by possibly being exposed to COVID-19 to end how police treat people of color throughout our country. This fueled a second surge in COVID-19 cases over the summer months. And still, the stock markets rose to new highs over the summer.

With fall came political campaigning with the culmination of our national election on November 3rd. Many pollsters predicted a “Blue Wave,” predicting that the Democratic party would win the presidency, the senate, and the house. We still don’t have complete clarity on how the full election will be recorded. 

Despite dozens of attempts to overturn election results by the Trump administration, Joe Biden will be the 46th President of the United States. While the pollsters predicted the Democrats would take 10-20 additional seats in the House of Representatives, they lost eight seats. And odds are that the Republican Party will win at least one of Georgia’s two U.S. Senate seats that are both going to a runoff on January 5, 2021. Both seats are held by Republican incumbents, and both are predicted to hold their seats. If this comes to fruition, Congress will be split, which the markets have looked at favorably. 

As we’ve written, the markets historically have performed better when power is divided, with the best market performance when there is a Democrat as President and a split congress. This is exactly what we will have if the Republicans can hold on to at least one of the two seats up for grabs. It wasn’t surprising to see the markets rise on this news.

And now, we are seeing a third wave of COVID-19 as a result of people visiting their family or friends over the Thanksgiving weekend. We were panicked when daily new cases approached 70,000 people per day over the summer. Daily new cases of COVID-19 have more than tripled from our summer highs, hitting over 254,000 on December 18th.
U.S. Daily New Cases of COVID-19
What’s worse is our death rate has spiked. I remember my heart dropping when Dr. Fauci originally predicted that between 70,000 and 250,000 Americans could lose their lives, depending on the precautions taken to control the spread and hospitalization levels. Our seven-day average death rate is approaching 2,700 a day. 3,554 Americans lost their lives on December 16th.
That’s an American life being lost every 24 seconds in this country. The total of Americans that have tested positive is approaching 18.5 million people, with over 326,000 losing their lives.
Source: Worldometers, John’s Hopkins University & the Center for Disease Control
There are over 115,000 Americans currently hospitalized, almost twice the levels we saw in April and July. And yet the markets continue to rise.
Operation Warp Speed has produced three vaccinations that have proven to be effective in combating COVID-19. The two most promising vaccinations are from Pfizer/BioNTech and Moderna. Both are using cutting edge medical technology called mRNA, which teaches our own immune response system how to make antibodies to help protect us from getting infected should the real virus enter our body.
Both were given emergency approval by the FDA, with Pfizer’s vaccine getting approval on December 11th and Moderna getting approval on December 18th for immediate use. The hope is to have herd immunity, which requires at least 70% of our population to get immunized. The trick now is producing enough vaccines and how to distribute them to the general population.
2020 has been anything but a normal year, as 20/20 would have implied. While Polaris Wealth Advisory Group has navigated this year with expertise and wisdom, we hope that 2021 will bring calm and rejuvenation. As we promised in 2020, we will be continuing our quarterly webinars, with the first webinar to be hosted in January. We will be providing you our full outlook for 2021 at that time.
In the meantime, we here at Polaris Wealth wish you all Happy Holidays!!! Please be smart and safe this holiday season.