Investment Commentary – February 2021

February 26, 2021

Despite a severe economic downturn caused by the coronavirus and ensuing shutdown, the U.S. economy staged an impressive comeback in the second half of 2020. At the end of the year, the economy was just 2.5% smaller than at the end of 2019, an impressive feat few would have predicted during the initial downturn. The stock market has seen a similarly impressive rebound from the early days of the pandemic. Optimism about the vaccine rollout, economic reopening, and expectations for more stimulus have driven the market higher, and the S&P 500 has seen 10 record closes in 2021.

As economic restrictions lift, consumers return to their usual business, and Americans get back to work, we expect economic growth in the near term to remain robust, albeit in an uneven and varied way across different regions and industries. There are growing concerns that speculation is driving the stock market and that the rally may soon run out of road. Additionally, there are fears that the accommodating fiscal and monetary policy we have seen since the pandemic are setting up a spike in inflation and may impede long-term growth. Despite these concerns, we remain cautiously optimistic. A major correction remains unlikely without an increase in interest rates, and so long as the economy does not overheat, rates are likely to remain low. That said, uncertainty does remain, and here are a few of the important issues that investors should be aware of in the coming year.

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