One Year Later – March 15, 2021
One year ago, the World Health Organization declared the Covid outbreak a pandemic. Americans were beginning to stock up on staples, strict lockdowns were in the pipeline, and the economy and the stock market were in a tailspin.
Shelter-in-place orders, business closures, and fear of Covid led to a 5.0% annualized decline in Q1 Gross Domestic Product (GDP), according to the U.S. Bureau of Economic Analysis.
The lion’s share of the damage occurred in Q2, with a record 31.4% annualized drop in GDP.
Meanwhile, the S&P 500 Index lost 34% of its value in a little over one month, according to S&P 500 data from the St. Louis Federal Reserve.
With uncharacteristic speed, the Federal Reserve jumped into action to minimize the recession’s impact, announcing a host of new programs. Its response went well beyond 2008.
The Federal government quickly passed the CARES Act, which provided generous jobless benefits, stimulus checks, paycheck protection loans, and more.
Investors reacted to the generosity and began to anticipate a robust economic recovery. By the end of August, the S&P 500 Index surpassed its February high (St. Louis Federal Reserve data).
In Q3, GDP rose a record 33.4%. A new relief package was passed at the end of December, and a much costlier package was just signed into law. Whatever your thoughts on the latest $1.9 trillion bill, it will send a tsunami of money into the economy.
Despite strong economic growth and an impressive run in stocks, the pandemic has created economic distortions that have yet to dissipate. The trend towards online buying has accelerated, and big box retailers that were deemed essential have done very well.
But some service-related industries have struggled to adapt to the new normal.
Until the pandemic is under control, social distancing restrictions have been fully lifted, and we are comfortable patronizing crowded businesses, it seems unlikely that large amounts of government cash will be funneled into struggling sectors.
Created 2021-03-15 14:47:23