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In many ways, 2021 felt an awful lot like 2020. The pandemic continued to devastate families, test health services, challenge communities and wreak havoc on economies, even as vaccines became broadly available in the U.S. Political tensions led to a day of rioting at the U.S. Capitol. Labor shortages and supply chain disruptions contributed to rising inflation, reported at 6.2 percent before seasonal adjustment in October.¹

Those who had hoped for a quick bounce back were disappointed, but there were beneficial outcomes to consider. Tech advances allowing for remote work led many people to re-evaluate their priorities and make adjustments. The uncertainties of the pandemic created an environment that encouraged Americans to reflect on their values, reconsider their retirement readiness and take new steps.

These are some of our key takeaways affecting financial advisors and clients during 2021.

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The economy and financial markets in recent years — and particularly since the pandemic — have experienced significant volatility, with interest rates remaining low. While markets have generally rebounded since their sharp decline in spring of 2020, the looming volatility remains, and many agree that interest rates will likely remain low for the foreseeable future.

Low interest rates have their pros and cons. For the millions of Americans entering the housing market, the historically low rates on mortgages feel like a great deal. When it comes to investing in insurance products intended to supplement a retirement plan, however, low interest rates could be viewed as a liability.

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As the U.S. endeavors to navigate out of the pandemic and into a recovery, questions remain about key factors, including COVID-19’s temporary and permanent effects on employment, the hope of achieving herd immunity, the unleashing of pent-up demand for goods and services as vaccinations rise, and the possibility of accelerating inflation. Investors have revised their expectations for economic growth in 2021-22 upward. 

Yet the global pandemic remains persistent, and recent developments on that front have been mixed. As U.S. vaccinations escalated, the rise of highly contagious variants and limited vaccine access around the world contribute to unpredictability that makes for a challenging long-term outlook. Scientists have proven their ability to respond with medical advances—but with a time lag.

Major developments in economic and monetary policy could also affect market sentiment. The biggest factors that could impact the expansion include federal spending, the pace of economic growth, trending inflation and interest rates, and monetary policy responses to a possible overheating economy.

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When it comes to financial markets, all eyes are on the latest happenings tied to the COVID-19 pandemic. Whether it’s weekly jobless claims, corporate earnings reports, global trade, fiscal policies or the potential for a vaccine, markets respond in stride.

Following unprecedented losses and the worst three-month decline on record in the second quarter, the U.S. economy rebounded at an estimated 25% growth rate in the third quarter, the fastest quarterly growth rate on record.

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Although there remains enormous uncertainty regarding the immediate future, it is important to remember that financial markets are forward looking and will anticipate an improvement in economic trends well in advance of the media.

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For 2019, world financial markets performed exceptionally well, with double-digit returns in virtually all major asset classes, including domestic and international equities, domestic fixed income, and precious metals. The 2020 investment landscape should become increasingly favorable as the year unfolds. Economic, financial, and policy trends should support another year of positive returns, although annual returns are virtually assured of trailing those of 2019, and by a wide margin.

In this edition of Economic Commentary, Robert F. DeLucia, CFA and Consulting Economist for MEMBERS Capital Advisors, Inc., provides a financial market review and landscape outlook and an annual investment review for 2020. Here are the highlights:

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