The 2020 economy took a wild ride. Though it showed some dents at the start of the year, it looked to be another big one for the stock market. This meant both businesses and individuals were destined for increased revenues.
Then the pandemic struck. At first, the market took a severe tumble. However, in a short period, it recovered. By November of 2020, the global market was valued at approximately $95 trillion.
At the start of 2021, the New York Stock Exchange (NYSE), S&P 500, and Nasdaq had reached record highs. Even the change of presidential administrations didn’t seem to affect it. In other words, those who believed the market would take a gigantic tumble due to the pandemic and political upheavals were incorrect.
What does this mean for the market’s future? Here are 3 things we learned in 2020 that could apply in 2021 and beyond.
People Learned How To Invest
People learn how to invest through different means. They rely on education sources at sites like The Minority Mindset. They obtain advice from a broker. Or they speak to a mentor who guides them through the process.
In 2020 they applied all that advice to their market purchases and sales. The result was a robust environment shielded against the hardest moments. They learned to hold on through the early days of the pandemic. When that started to settle down investors maintained their course through moments of racial unrest and political change.
Maybe the reasons weren’t education-related as much as investors had been through something like this before. They saw what happened during the Great Recession when the market dropped almost 800 points in one day. In the end, they didn’t want the volatility of that time to happen again.
The Market is Resilient
Some investors always bring up the fears of a bear market. This is a period where stocks are expected to fall. At the upper end, this might be due to a long-overdue correction. At the lower end, a bear market might take place due to abject fear.
This is what some investors felt would happen when the pandemic shut the global markets down. When the other events of 2020 piled on top of that scary situation, the more pessimistic individuals and groups believed the market wouldn’t be able to handle the stress.
Yet, the stock market not only held on by thrived. A good portion of this positivity was due to the actions of the Federal Reserve. They injected stimulus into the economy through the Central Banks and made several corporate bond purchases. In doing so, they applied what they learned from the Great Recession to shore up the markets.
The Stock Market and Economy are Different Entities
While the stock market was breaking records the real-world economy suffered. Millions of people were put on furlough or laid off. Companies that couldn’t get monetary relief closed down. Though a stimulus package helped some during the early days of the pandemic, the money didn’t go far enough. By the end of 2020 people across the globe were losing their homes and going hungry.
While this took place, the NYSE closed at a record high of 30,409 on December 31. This signified a vast chasm between the work of stock investments and that of the real world. In turn, it reopened debates about financial equality, destruction of the middle class, and the increasing power of a small pool of individuals and groups.
Though uncomfortable, a return to this debate set the scene for 2021. With a shift in federal power and the hope of coronavirus vaccines, stresses from 2020 started to subside. In its place was a determination to find the factors that helped the stock market. From there, respective parties could discover the disparity between the market’s success and the economy’s failures.
Does this mean what we learned about the stock market in 2020 will be applicable for future years of calamity? Yes and no. What happened was a perfect storm of events that truly changed the makeup of the U.S. and the world. In simpler terms, the lessons learned in 2020 might not apply in 2021.
In fact, the energy the market had that year could soon diminish. Thus, an enormous correction might take place. If it does, then we will learn more things about the stock market to apply to the future.
