Stock Market 2021: Optimism & Patience Will Pay Again

 (Drivebycuriosity) - The begin of a new year is the time to look back and ahead as well. 2020 was outstanding. I suppose in March, when the S&P 500, the gauge for the US stock market, had suddenly nosedived around 30%, not many expected that the index will end the weird year with a gain of  16% -  closing on an all-time high. It´s fascinating and impressive how fast the market overcome the new crisis. 2020 proved again that optimism & patience pay off - and so does investing with a long term horizon.

 

 

 

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The rally isn`t unexpected, I had explained this phenomena in some blog posts (March 25  June 8   August 19  September 8). As usual the market looks ahead. The corona pandemic, which is still spiraling in the US & Europe, will end this year thanks to a variety of vaccines. I am impressed that their creation needed less than one year, another sign how strongly the accelerating technological progress is improving our lives - and one of the reasons for the current optimism.

The stock market benefits of course from the huge government stimulus programs, almost zero interest rates & cheap oil. But much more important - and sustainable - are the tailwinds from the accelerating technological revolution which are spurred by the Covid-19 crisis. Internet - and other software applications - are helping everyone to deal with lockdowns and social distancing. Microsoft`s CEO Satya Nadella said that “two years of digital transformation took place in two months” ( microsoft ). The CEO of Bill.com, an online clearing service, said: "We believe the ongoing pandemic has accelerated the need for businesses to focus on digital transformation” (seekingalph). 

The Covid-19 Pandemic changed many habits. The crisis forces many people to work, learn, shop, educate & entertain themselves from home which is fostering digitization and raising efficiency & productivity of the economy ( driveby ). Online sales worldwide are surging, more people are working from home, they are binge watching Netflix & Amazon Prime, listening via Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Not only consumers are changing, corporations adapt as well. We are witnessing an accelerated shift toward digital technologies that are faster, less expensive, more productive and raise creativity. 

I suppose that the stock market will continue the climb this year and beyond. Maybe we are at the begin of a new Roaring Twenties, comparable to the boom phase which happened during the 1920s years after the Spanish Flu. Companies restructured and reduced costs crisis significantly during the recessions of the years 2001/02 & 2008 and the current in order to survive. When Covid-19 is defeated they will be much fitter and more efficient than before. I believe that this learning process will continue and will translate into a long term trend of rising company profits & stock markets. Optimism & patience will pay again.

Happy New Year!