Well, here we are on the last day of one of the worst years in recent memory. The COVID-19 pandemic came out of nowhere and devastated the US economy, with millions of Americans losing their jobs in the first half of this year. Unemployment soared at a record rate for several months, with many jobs lost permanently. The scars on the economy were unprecedented.

Yet the US stock market which suffered its worst one-month loss in history, down 34% in March, came roaring back in the months which followed, soaring to new all-time highs last summer. And it has continued to hit new highs time and time again since then.

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So while the COVID-19 death toll is staggering at over 300,000 in the US this year, the stock market is telling Americans to be optimistic about 2021, experts say. Why? The economy is expected to continue recovering with a vaccine created in less than a year. And Wall Street professionals expect another good year for investors.

Despite the record plunge in the 1Q, now that we’re back at record highs, it’s a harsh reminder to people that the stock market is a forward-looking mechanism that currently sees better times ahead. You may agree or disagree, but the stock market’s meteoric rise this year should not be ignored.

Unfortunately, many investors bailed out of the markets in March and April, as always happens in sharp declines, and many missed the historic recovery in the balance of the year. Some still remain fearful about the trajectory of the economy as unemployment remains elevated and COVID-19 cases are spiking this winter, threatening further business closures.

The Economic Recovery May Have Years To Run

Still, the economic expansion which began in the summer may have years to run, experts say, and that typically fuels further stock gains, helped in part by strong corporate profit growth. The length of economic expansions has averaged 5.3 years since data have been kept, according to the National Bureau of Economic Research, which anticipates a more gradual recovery ahead after stocks snapped back this year following the sharp sell-off in March.

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Most bull markets in stocks deliver their strongest returns in the early years, but the current bull run, which began in March 2009, has continued to deliver very strong returns this year, some 11 years since the bottom.

Still, most forecasters believe we will see moderating equity returns going forward, sustained by the improved economy and a rebound in corporate earnings. The average bull market has gained a cumulative 179% and lasted almost six years. This one has done considerably better, up almost 365% from the low in early March 2009, the longest and strongest bull market ever.

Yet many investors still have their doubts despite this year’s impressive run to new record highs. The current recovery phase in some ways mirrors the pessimistic attitude of investors in 2009 and 2010 in the aftermath of the Great Recession.

In the short run, it’s hard for people to grasp that the market is influenced by whether things are getting better and should continue to do so over the next six to 12 months, not by the daily negative headlines we see from the anti-Trump media.

A lot of people are stuck in the mindset that things aren’t nearly as good as the stock market suggests, so they wait for the “all-clear” before investing. All too often, however, waiting for the all-clear means missing most of the upturn.

The bottom line is the stock markets are predicting a good economic year in 2021. That is not without risks, however. COVID-19 cases are rising and some researchers fear we could see new highs in the coming months. The good news is we now have vaccines available and tens of millions of Americans will be immunized over the next several months.

Experts now predict we will approach so-called “herd immunity” by late spring next year and the coronavirus will slowly disappear. They also predict pent-up consumer demand will come roaring back with a significant increase in retail spending. This remains to be seen, of course, but it does not seem unreasonable.

The key just ahead is whether COVID vaccinations can overtake the latest rise in new infections. Most of the experts are optimistic. While consumer spending, which accounts for apprx. 70% of economic growth, has rebounded somewhat in the last couple of months, it remains to be seen if it will surge much more in the next few months as forecasters predict.

If the stock market is any predictor, the future looks pretty good. Yet that outlook may depend on the results of the two runoff elections in Georgia next Tuesday, which will decide which political party controls the Senate and ultimately the government going forward.

It will be interesting to see how the stock markets react to the election results next week. I’ll keep you posted.

LATE NOTE: The two Democratic senatorial candidates in Georgia are leading their Republican incumbent opponents by comfortable margins in the latest polls this week. If they both win, Democrats will control Congress and the White House. I fear this will be bad news for stocks.