A different recession: The tunnel and the bright spot

January 6, 2021

For much of 2020, I have felt that I have been feeling my way through a tunnel, squinting at a far-off bright spot. What is so interesting to me is how different our 2020 financial challenges have felt compared to those of other recessions.

During the worst parts of the 2008-2009 “toxic debt” downturn, it was hard to find bright spots. During the 2001-2002 9/11 & tech-bust recession, we were worried that more planes would fly into our buildings or that we would be poisoned by anthrax. There’s nothing bright about either of those.

But this time was different. The financial bright spot throughout the year was the likelihood of herd immunity and/or a vaccine. Because of that, we saw a huge divergence between the economy and the stock market. The stock market focused on the bright spot, and the economy was left to stumble through the tunnel.

As our clients know from our meetings, we used many strategies, as suitable, to capitalize on the bright spot:

  • During the downturn, we bought stocks, funded retirement plans to get the “pop up” in a tax advantaged account, and harvested capital losses to reduce 2020 taxes.
  • During the upswing, we overweighted equities and contributed stock positions to charities when values were high.
  • We also counseled clients on PPP loans, home mortgage refinances, and new unemployment benefits.

Most importantly, we were able to say, as suitable, “We incorporated a near-term downturn in creating your financial plan. Your plan and finances are in good shape.” Sharing that news is one of the best parts of serving clients!

Factoring in demand and productivity

With vaccines rolling out, the bright spot seems closer, though there are risks along the way. The stock market, which looks out six to 12 months, is already pricing in not just the economy’s re-opening, but also a big burst of post-pandemic pent-up demand.

Consumers have plenty of money to spend. The U.S. savings rate increased to almost 35% in March and was still running high at nearly 15% in September.1 With this pent-up demand in our sights, we are continuing to allow stocks (equities), as suitable, to run 5% over your target.

Beyond pent-up demand, our eye is on likely future productivity increases, which are generally good for stocks. An example from the past: moving from horses to cars. Yes, a lot of horse farmers went out of business — which is the difficult side of disruption — but the efficiencies offered by vehicles powered our economy forward.

Recessions often bring a productivity boost as less profitable companies go out of business. The productivity boost may be higher this time around. For example, Goldman Sachs’ analysts are projecting a productivity increase of 3.8% by 2022.1 They indicate that this may translate into a longer runway for our next expansion and the possibility of stronger-than-expected growth in 2021 to 2022.

Examples in daily life

Many of us see productivity opportunities in our daily lives:

  • Do you buy goods online? Ecommerce has enabled 8% higher goods consumption despite 1.5% fewer workers in retail and support industries.1 While this disruption can hurt local retailers, savings occur as shoppers do not need the help of retail workers nor as much time in a brick-and-mortar store.
  • Many of you connect with family and friends and meet with our team using video conference software. Business meetings are being held the same way, locally and across the globe. An Atlanta FED survey of 338 businesses found that firms expect travel costs to remain down by 28.6% on average after the pandemic is over as many business meetings continue virtual.1
  • Some of you are working or volunteering from home. If service sector employees work from home one day per week on average after the pandemic, this would free up 15% of office real estate for alternative uses.1
  • Have you used telemedicine in the last few months? This is another potential productivity enhancement as less front desk support or fewer exam rooms may be required.2
  • Have you taken a course online? I am now taking my 40 required annual hours of continuing education virtually. Think of the potential cost savings to businesses of avoiding flight and hotel costs for some business conferences. For colleges, one study suggests that online courses may reduce costs by $12 to $66 per credit hour, a 3% to 50% difference.3

Factoring in pent-up demand and productivity improvements, our outlook for many stocks is positive as we look out two to three years. Due to likely low interest rates, our outlook for many types of bonds is positive as well. Of course, as we all know so well, surprises can occur, and we will remain ready to “jump in at attractive prices” if they materialize.



  1. Goldman Sachs Economics Research, December 23, 2020.
  2. Telemedicine benefits: For patients and professionals. Medical News Today, Zawn Villines, April 20, 2020.
  3. Do Online Courses Really Save Money? A new study explores ROI for colleges and students. Edsure.com, Jeffrey Young, April 12, 2018.

Important information. The information on this and the previous page is not intended as a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended for a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for every investor. Investing involves risk and investors may incur a profit or a loss, including the loss of all principal. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. This may result in greater share price volatility. These risks are heightened in emerging markets. Diversification does not assure profit or protection against loss. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. Bond prices and interest rates have an inverse relationship. Dividends are not guaranteed and must be authorized by the company’s board of directors. No one graph, chart, formula, or software can in and of itself be used to determine which securities to buy or sell, when to buy or sell them, or assist any person in making decisions as to which securities to buy or sell or when to buy or sell them. Any chart, graph, formula, or software used is limited by the data entered and the created parameters. Market performance results were obtained from Morningstar.com.

Dow Jones Industrial Average: The Dow Jones Industrial Average is a composite of 30 stocks spread among a wide variety of industries, such as financial services, industrials, consumer services, technology, health care, oil & gas, consumer goods, telecommunications, and basic materials. The index is price weighted (component weightings are affected by changes in the stocks’ prices). S&P 500: Representing approximately 80% of the investable U.S. equity market, the S&P 500 measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. MSCI EAFE (Europe, Australasia, Far East) Index: A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2, 2014, the index consists of 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. BBG Barclays Aggregate Bond: A representation of SEC-registered, taxable, and dollar denominated securities. The index covers the U.S. investment grade fixed rate bond market, with index components for asset-backed securities, government and corporate securities, and mortgage pass-through securities. Must be rated investment grade (Baa3/BBB- or higher) by at least two of the following rating agencies: Moody’s, S&P, Fitch; regardless of call features have at least one year to final maturity and have an outstanding par value amount of at least $250 million. Russell 2000: The index measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 and includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. BBG Barclays 1 – 3-year Treasuries: The index measures the performance of the U.S. Treasury and U.S. Agency Indices with maturities of 1-3 years, including Treasuries and U.S. agency debentures. It is a component of the U.S. Government/Credit Index and the U.S. Aggregate Index. MSCI Emerging Markets is a free-floating index offered by Morgan Stanley that captures mid and large capitalization stocks across more 26 countries including many in S. America, Eastern Europe, Africa, the Middle East, and parts of Asia, including Indonesia, the Philippines, and Taiwan.

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