Outlook 2021: Things Can Only Get Better

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As we consider what may happen in 2021, it’s useful to reflect on how we ended 2020—both the good and the bad. For the good, the election is behind us. Vaccines look to be more effective than anyone expected. Jobs and confidence are holding up surprisingly well as the economy adapts. In many ways, things are much better than we thought.

Not in all ways, though. The election is over, but not yet resolved. The third wave continues to worsen. Many people will face a financial cliff at the end of the year as subsidies expire. While there is a lot of good news, there is almost—but not quite—as much bad news.

More good than bad seems to be what markets are banking on. In early December, markets were at or close to all-time highs, which reflects a good deal of net optimism. Most of the worst news is backward facing, while most of the best news looks forward—and the forward news is what matters to the economy and markets most.

In an environment where so much is happening, it’s hard to predict what might happen in the year ahead. At the same time, we do know enough to make some educated guesses about the likely course of events. The biggest call is simply this: that next year will be much better than this year.

Where We Are

On the medical front, there are signs the third wave is starting to peak. With many states now implementing mask requirements and shutdowns, we should bring the pandemic back under control in the next couple of months. And as the third wave recedes, we should see the first wave of vaccinations start. Given what we know today, we can have some confidence that the virus will start to move from an urgent problem to a chronic but manageable one sometime in the first half of the year.

From an economic standpoint, the news is even better. Right now, growth is still positive even as the third wave crests. Job growth continues to be substantially higher than what we saw before the pandemic, indicating our economy is healing and adapting. Consumer confidence is holding up, supported by the improving job climate. Retail spending has recovered to new highs and continues to grow. And as the medical news improves, we can expect to see both confidence and spending grow even faster.

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