Monday, May 23, 2022

THINK STRATEGICALLY: Trends, Insight & Lessons Learned for 2021

By on January 4, 2021

Image by Pexels from Pixabay 

As global and U.S. stock markets closed at the end of 2020, the world is just a step closer to eradicating the COVID pandemic; however, economic recovery will take longer to become sustainable.

The three vaccines approved and in distribution have become our beacons of hope; with at least two or three more in the Pharma pipelines, we begin the year 2021 with the visibility of a world without COVID. The long-term outlook for 2021 is quite bright; however, there are still short-term risks that need to be managed.

Finally, as we put 2020 behind and usher in the new year 2021, we share the top seven trends to be aware of during 2021.

1. Economic Recovery: We have never had in modern history such uncertainty over the world’s economic forecasts. Most nations’ economic engine depends on the massive vaccinations, control of the pandemic, and normalization of the world’s economy. The part that is not yet known is what has been the overall damage to most sectors after the economic destruction 2020 wrought. Since most governments have massive emergency stimulus packages, the full extent of the damage will not be realized until the second quarter of 2021.

2. Vaccines Become the new Gold: As the two vaccines become available worldwide, most nations’ focus is to acquire as many as they can afford to begin the gigantic task of providing vaccines for 7.8 billion human beings. We shall see an increased worldwide lobby over which nations get to have the vaccines first.

3. All Eyes on Joe Biden: Expectations are high for President-Elect Biden to restore the worldwide respect towards the U.S. and attempt to mend all the damage that the Trump administration left regarding the way its peers view the U.S.

4. Tourism and Travel will Remain Affected: Tourism as we know it will change and reduce, with an increased focus on local and domestic Travel. Our analysis will take at least three years for the tourism sector to re-shape itself to face the new health-conscious traveler. In that regard, Hotel Chains, Airlines, Car Rentals, Aircraft manufacturers, and all related industries will continue to contract and face large reductions in revenues. The trend may impact higher education institutions that are highly dependent on international students.

5. U.S. and China Trade Tensions are not Over: One of the things the Trump presidency was right to approach was the asymmetrical economic relations that China has with the U.S., where all Chinese products arrived at the U.S. freely, while U.S. products faced massive tariffs and scrutiny, as well as copyright, design theft and other damages. We do not see President Biden walking away from the trade war; what we do see is a more diplomatic approach to ease tensions while agreeing to a solution that will be more balanced.

6. The Digitalization of the world Becomes Permanent: The year 2020 forced hundreds of thousands of businesses and millions of people to utilize technology in numbers and ways never imagined. By 2021 we will have a clearer view whether most of these technological adoptions will remain as relevant. Some of the ones to watch are distance learning, video conferencing, working remotely, online sales, and the delivery of goods.

7. Healthcare Risks Remain Top Concerns: As the world initially brushed off the pandemic, thinking it was a Chinese problem. Scientists and researchers worldwide had been warning of the threat of a pandemic for years. We now see many nations implementing plans to detect and fight new disease outbreaks.

The year 2021 will be one of the most exciting and challenging in decades, providing fertile ground for explorations, new trends, and incredible opportunities. The human race has a chance to prevail; to do so, we must respect our planet, fight climate change, and become more centered on our damaging actions to our ecosystems.

One of the most long-lasting images that I will have from 2020 is as people quarantined, the earth got cleaner, uncluttered and wilder.

Countries like India, which suffer from smog, were able to see the blue sky and other sightings not visible for years. In Italy, air pollution levels were down 50%; in the U.S., nitrogen dioxide produced by fossil fuel consumption was down more than 30%, and we were again able to see the stars every night.

As they stayed home, people began to see how wildlife ventured out in many places, from coyotes in Chicago to pumas in Chile. When people stay away, the earth’s balance takes over, providing the world a chance to heal and wildlife to thrive.

The Year in Markets 2020 and 2021 Wall Street: Outlook Key Observations

One question that keeps coming back again and again, is why Wall Street seems to be disconnected from Main Street?

Amid the pandemic and all the calamity, the U.S. stock markets came back to post record-high returns: the Dow Jones with 7.25%, the S&P 500 reached 16.26%; the Nasdaq Composite gained 43.64%, and the Birling Puerto Rico Stock Index posted a 0.35% return.

The U.S. economy benefited from the different stimulus bills and Federal Reserve intervention, for a net benefit to most citizens’ income.

Personal Income Increases line items:

  • Cares Act-Unemployment Benefits: $499 billion
  • Stimulus Checks: $276 billion
  • Business Owners Income: $29 billion
  • All other Income: $265 billion
  • Total: $1.03 trillion
    (Less Loss of Wages $43 billion)
  • Net Income Increase: $987 billion
    (Less Total Personal Expenses: $535 billion)
  • Net Benefit to the Economy: $452 billion

That positive income went to savings accounts, money markets, investments and other savings vehicles helping Wall Street recover faster than from any other exogenous shock situation in history.

Wall Street 2020 summary for the year:

  • The Dow Jones Industrial Average closed at 30,606.48, up 2,068.04 points, for a year-to-date (YTD) return of 7.25%.
  • The Standard & Poor’s 500 closed at 3,756.03, up 525.29 points, for a YTD return of 16.26%.
  • The Nasdaq Composite Index closed at 12,888.28, up 3,915.68 points, for a YTD return of 43.64%.

The Birling Puerto Rico Stock Index closed at 2,045.03, up 7.94 points, for a YTD of 0.35%.

  • The U.S. Treasury 10-year note closed at 0.93%, for a YTD return of -49.18%
  • The U.S. Treasury 2-year note closed at 0.13%, for a YTD return of -91.50%.

The Final Word: Lessons Learned & 2021 Outlook

As stocks ended 2020 with 16% or more gains, delivering such results in a year that included an economy-destroying pandemic mixed with a recession and, for good measure, a chaotic presidential election and post-election. We can now share some of the lessons learned in 2020:

  • Remaining calm and sticking with your long-term financial goals when the markets are in panic is the key.
  • Investors always benefit from having a well-diversified portfolio with the correct mix of stocks and bonds, and other instruments with a long-term investment strategy.
  • Always remember Wall Street looks forward, not back, nor at the present.
  • The U.S. economy is getting ready for expansion after the massive vaccine distribution and the added benefit of stimulus funding.
  • Unemployment will decline sharply; however, we see unemployment rate hovering at 5%.
  • The bull market continues its rise, with the wind on its back.
  • This time of the year is the appropriate moment when investors should review their financial goals and get their portfolios ready for 2021 and beyond.

Review your budget, adjust your financial plan accordingly. Some essential items include creating or rebuilding your emergency funds, paying down debt and increasing savings.

Monitor your diversification strategy to ensure your investments are well-positioned to navigate the rotation of sectors that will take place during 2021.

We wish you a great 2021.

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