Riding The Recovery With Stocks

With inflation surging and speculation that the Federal Reserve could soon push up interest rates, ordinary folks saving for long-term goals should consider how resilient equities proved to be during the pandemic and stick with stocks.

Piggy Bank, Gold, Money, Finance

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Government-ordered shutdowns caused the most dramatic contraction in the U.S. economy since the Great Depression but in 2020, the Federal Reserve printed $3.1 trillion to effectively finance stimulus payments, aid to small businesses and the unemployed and shore up state finances.

Ordinary folks remained sanguine. After the market tanked 34 percent with the onset of COVID-19, many small investors — enabled by commission free trading pioneered by Robinhood — became traders and others piled up record sums in tax-sheltered retirement vehicles.

Since March of last year, the S&P 500 has rebounded about 85 percent, but how that happened in an economy that displaced 22 million jobs owes a lot to the peculiar nature of the COVID-19 recession.

In considerable measure, permanent business closures were concentrated among small enterprises. And in the commercial centers of progressive cities like New York, Chicago and Seattle that were rocked by riots and looting last summer and burdened by excessive taxation made local economies ripe for jobs’ flight.

Healthy corporations were able to curtail investments to build cash buffers. Those rendered to junk status like Ford were enabled by rock bottom interest rates to raise funds in bond markets.

The private economy proved surprisingly adaptable — Zoom (ZM) and other cloud software replaced jet travel and mundane commuting with the ease that the Gutenberg Press displaced the monk’s quill.

As restaurants, stores and other businesses reopened, encouraging stories abounded about American companies pouring billions into the next generation’s technologies. Consider electric vehicle startups like Tesla and Rivian, Amazon’s Cloud revolution, Apple’s call for engineers to literally invent 6G internet technology and Alphabet’s (GOOGL) Apple’s and GM’s (GM) investments in artificial intelligence for autonomous drive (TSLA, AMZN, AAPL).

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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