Capital markets produced a year that was remarkably positive for investors, considering the obstacles and uncertainty encountered along the way. The stay-at-home economy propelled technology shares, and the Federal Reserve provided unprecedented monetary support for the financial system. Two vaccines for COVID-19 have already been approved by the FDA in an accelerated development effort by the pharmaceutical industry. Those vaccines are expected to curtail the health threat posed by the virus, which should help to alleviate the shutdown in businesses caused by the pandemic. The Presidential election season has drawn to a close with Joe Biden winning the Presidency and Democrats effectively gaining control of the Senate. With those victories, the Democrat party will control the Executive Branch and both chambers of Congress, which likely means a dramatic change in the legislative agenda. It was a year of historic challenges, yet the capital markets showed surprising resilience.
Stock prices recovered from the slump experienced early in the year to close out 2020 at fresh all-time highs. Technology companies led the way, as the pandemic boosted sales of products and services that enable remote work arrangements. Small company stocks, international stocks and fixed income holdings all contributed to rising portfolio values for investors. On the surface, those positive results reveal little of the hardship and setbacks endured by the global economy as well as so many small businesses and their employees.
The coronavirus pandemic has wielded a dominating influence over the economic environment. Tragically, 365,000 people in the U.S. have lost their battle with the virus. Shutting down the economy to slow the spread of the virus put 22 million Americans out of work, causing the unemployment rate to spike to 14.8 percent in April. Companies improvised as best they could by providing delivery services and remote work arrangements that recovered roughly 12 million of the 22 million lost jobs. However, the current 6.7 percent unemployment rate remains nearly double the rate prior to the crisis, with the restaurant, travel and hospitality industries especially impacted.
Enduring this health crisis has not been easy. Restrictions on businesses, schools, travel, entertainment events and social interactions have added to the trauma caused by the virus. Fortunately, we expect this year will bring some welcome relief. In December, the FDA granted an Emergency Use Authorization for two COVID-19 vaccines, and other companies are also rapidly advancing their vaccines toward approval. More than 20 million doses of the new vaccines have already been administered globally, with nearly seven million of those doses given here in the United States. Production, distribution and administration of the vaccination effort is ramping up quickly, so most people who want a vaccine are likely to have access to it in the coming year.
Georgia completed its runoff elections for two Senate seats, and the results of the Presidential race have been certified. Joe Biden will be sworn in as our nation’s next President at the January 20 inauguration, with Kamala Harris becoming Vice President. Democrats retain majority of the House of Representatives, and they effectively gain control of the Senate by way of Kamala Harris’s deciding vote in an evenly-divided 50:50 chamber. Wall Street expects the changing of the guard in DC will mean trillions of dollars in additional Federal spending on infrastructure projects and other legislative priorities of the incoming administration.
Typically, high levels of government spending and monetary stimulus can raise concerns for surging inflation. At the onset of the pandemic, the Federal Reserve took actions to reduce interest rates and shore up liquidity in the financial system. Those efforts are intended to stimulate the economy by making capital more readily accessible. While this is beneficial to borrowers, it makes it difficult for investors to earn much on their bond holdings. Yields have risen modestly off their lows, although Wall Street does not expect much hawkish behavior by the Federal Reserve until overall employment conditions are much stronger. We will be on the lookout for inflationary surges, although economists generally expect interest rates to remain lower than normal for the immediate future.
We are grateful for the recent gains in the capital markets, yet we know there is a lot of healing still ahead of us. Eliminating the threat of COVID-19 and helping people get back to work are at the top of our priority list for 2021. Safely opening schools and clearing the way for social gatherings are important contributors toward recovering our lifestyle and well-being.
As always, everyone here at West Oak Capital sends our best wishes to you and your family. We hope you enjoy a healthy, happy and productive new year. Please contact us if you have any thoughts you would like to discuss.