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January 6, 2021

A Year-End Market Commentary

By Joel Malick, Steadfast Wealth Co.

A century ago, during the Spanish Flu of 1918, the world had approximately 1.5 billion people. This virus infected roughly 500 million, a full 1/3 of the entire global population. Ultimately and tragically, the Spanish Flu took the lives of an estimated 50 million people worldwide. The Covid-19 pandemic of 2020 certainly did not come near that level of destruction, but it is the first time we’ve faced anything like it. Our present-day virus has left a multitude of scars in its wake. Just as the deeply philosophical rock band Goo Goo Dolls (throwback to the ’90s) once coined in their song Name—scars are souvenirs we never lose. 

Scars are interesting. They remind us of a grim event that healed. We all had some physical and metaphorical scars coming into this year, of course—and now we have more. With enough time, they heal and become stories we share or lessons we pass on. We eventually learn to appreciate them as part of who we are. The lessons of this year’s scars are many, and they span all levels of depth. Ideally, this is something we can all take some time to reflect upon with the most anticipated New Year’s celebration of all time.  Partying like it’s 1999 has nothing on this New Year 2021!

I remember back in late January 2020 when I first saw the word coronavirus in the news. My thought was, “Big deal, this will blow over quickly.” That couldn’t have been further from the truth. We soon faced the steepest bear market in history, starting from the stock market peak on February 19th and plunging to its trough only 33 days later. (One bit of good news coming out of this is that we no longer have to talk about “the longest bull market in history” that began in 2009 😊. Okay, I’ll stop joking).

At 33 days, 2020 is the shortest S&P 500 bear market in recent history:

Note: Bear markets are declines of 20% or more. The number of days includes weekends and holidays.
Source: Yardeni Research, Inc., Standard & Poor’s Corporations, Haver Analytics

On March 23rd of this year, we knew almost nothing about what our global economic future would look like. It seemed that doom was all around us, but the market had already reached its bottom. As so often in the past, people couldn’t believe the market was rebounding amid so much uncertainty. However, here at Steadfast Wealth Co., we are keenly aware that stocks are good at climbing walls of worry. Although the stock market (S&P 500) decline of about 35% was close to the average bear market decline of 37%, its swiftness helped … like ripping off a Band-Aid.

Conversely, most bear markets that we remember in our lifetimes (like those in 1982, 2002, and 2009) gave us too much time to chew on and obsess over. The Turks have a proverb that goes something like this: “The devil tempts all other men, but idle men tempt the devil.” Knowing that bear markets are a natural occurrence in the world of investing (this won’t be the last one!), if we had a magic wand that could dictate how future declines would occur, we would always vote for speed. This is something for which we can all be thankful.

Here at our firm, we have a gauge that has proven rather accurate over the years in signaling whether the market is close to a bottom. It’s when professional investment advisors begin to worry and consider changing course for their clients. Sure enough, after the market close on Friday, March 20th, I was driving to the grocery store to stock up for a week or so (hoping they still had toilet paper). A respected fellow local advisor called me and voiced the worry refrain. Well, three trading days later, the market would begin the upward journey that by mid-August would cap the second quickest recovery ever, an almost 55% bounce from March’s low.

However, there’s no burnishing a shine onto this one. It was (and still is) a very bleak time that has seen families sending loved ones to the hospital, wondering if this may be a final goodbye. If you’re one of those families reading this, please know that you are in our prayers. If you weren’t worried about your health, money, or future, you weren’t human.  Businesses had to shut down, airlines turned vacant tarmac into parking lots, cruise companies had to rent harbor space. The TSA reported a collapse in daily travelers to a low of 90,510 on April 12th—down from 2,226,801 the same week one year earlier. Teachers were forced to begin educating their students remotely almost overnight, nurses and doctors entered a war zone and forced the world to adopt new technology that they never thought would be part of their daily lives. Today, I certainly don’t get any weird looks when I ask someone to Zoom. 

I’ll never forget the day earlier this year when the market was down over 11%! I thought to myself, “That would normally be over the course of a year, not a few hours.” Record stimulus was injected into the economy, and now we talk in t’s instead of b’s (trillions/billions)—not the second language I was hoping to learn when 2020 began. Couple this influx of cash with no one being able to do much with it, and the savings accounts of many Americans ballooned, creating the largest M2 money supply in our history, up 24.3% year over year (see chart below). We talked to many clients over the past months, saying, “Right now, we’re laying low, but we’re planning something big once this is all over.” 


At Steadfast Wealth Co, 2020 has only fortified our ideology in guiding clients by leveraging two core tenets: (1) sound financial planning, coupled with (2) good behavioral guidance. It protected us through this time and will next time too. If there has been any grand lesson this year, it has been to reaffirm our belief that the market doesn’t care what we think or how we feel.  It lives in the future and reflects where we are headed, rather than where we have been or what we are currently experiencing. Trying to time such a beast is indeed a fool’s errand. For those who attempted a market timing strategy in 2020, the wounds remain deep. 

A consolation prize is that this year may banish (at least for a while) any future use of the infamous four words that each failed investor utters just before they derail their economic future: “It’s different this time.” After 2020, nothing may seem different again.

We would be remiss if we ended this discussion with only an economic perspective in mind. New highs of personal growth are on the horizon if we choose to go after them. In the beautiful Yellowstone area, the seeds of the native jack pines and lodgepole pines are sealed with a resinous bond that can be cracked open only by high temperatures associated with wildfire. The destructive inferno is necessary to create new life. With a little perseverance and focused intentionality, we are all a bit better prepared to face challenges ahead. Removed far enough from the struggle, we can look back with gratitude, just like we do with scars.

But if the 2020 refinery we’ve been through fails to purify us in some way, well, that would be the greatest tragedy of all. We have far more within us than we give ourselves credit for. This is not a rallying cry to try and convince you that the answer is to do more in 2021 or try to become a superhero. It’s a call to look at what you’ve been through and harness it to try and become a better version of who you already are, both as an investor and as a human being. 

2021 could be an astounding year. If it is, it won’t be because of any political or business leader. It will simply be you and me deciding not to be a casualty of hard times but instead purveyors of our potential greatest overcoming.  Everyone loves a comeback story, maybe even more than an underdog story. Someone as wayward as Tiger Woods before his fall now elicits our sympathy and our reassuring as he rises back up. For the first time in my life, I see us all in the same posture, fighting to overcome a great obstacle and trying to make sense out of what just happened. We are the comeback story.

Let’s do ourselves a favor and see this past year as a great instigator of change that could never have otherwise been achieved. So, the next time someone looks at you disheartened and says, “I’m not sure if things will ever go back to the way they were,” you can honestly look them in the eye, give a smile, and reply, “I agree… and that’s a good thing.” In financial planning and investing, we hope the next time that uncertainty comes knocking, you can use your 2020 scar as a guide and remain steadfast. In life, we pray you leave this year more focused on what you became rather than what you lost—what it will create for you going forward rather than what it took from you. That is what our team here at Steadfast will be doing as we ring in 2021!

Thanks for reading and Happy New Year!

Sources
–Center for Disease Control, Resources, 2020 Pandemic, November 2020
–Say Goodbye to the Shortest Bear Market in S&P 500 History, Reuters, August 18, 2020
–Inspirtationalstories.com/Proverbs
–S&P 500 Hits its first record High since February after overcoming a virus driven bear market, markets.businessinsider.com, August 18, 2020.
–TSA travel and checkpoint numbers for 2020 and 2019, Transportation Security Administration, October 2020
–Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2], retrieved from FRED, Federal Reserve Bank of St. Louis; December 27, 2020
–Forest After Fire: The Forest’s Restoration & Regrowth After Wildfire, Frontline Wildfire Defense System, November 2020

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note an investor cannot invest directly in an index.

Securities and Investment Advisory Services offered through Securian Financial Services, Inc. member FINRA/SIPC. Steadfast Wealth Co., is independently owned and operated. 7222 Commerce Center Drive, Colorado Springs, CO 80919
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Joel Malick currently maintains the Accredited Investment Fiduciary (AIF®) and Accredited Wealth Management Advisor (AWMA®) designations. Joel and his team at Steadfast Wealth Co. recognize that running this race for the long term is one of the greatest challenges you’ll face in your lifetime. Thus, they combine critical planning and investment strategies with real-life perspectives. Their consultation is provided at no additional cost to Alliance 403(b) Retirement Plan participants.


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