Podcasts Business Retirement Starts Today Why Markets Boomed in a Year of Human Misery, Ep #180

Why Markets Boomed in a Year of Human Misery, Ep #180

Published: Feb. 22, 2021, 9 a.m.

Have you wondered why the markets had such an amazing year in 2020 when the economy was a mess and everyone was stuck at home? You aren\u2019t the only one. That\u2019s why in this episode, we\u2019ll look at a New York Times article that examines this question.\xa0

We\u2019ll also answer some listener questions directly from our\xa0newsletter\xa0readers. Dave asks about dividend investing in retirement and Brian asks about how to pivot away from target-date funds after retiring.\xa0

Outline of This Episode
  • [1:22] How data can help us understand the stock market\u2019s response to Covid 19
  • [7:50] Is it better to reinvest dividends from stock funds and interest from bond funds in retirement?
  • [10:30] Should you maintain your assets in a target-date fund after retirement?
Covid brought about even bigger differences between the haves and have nots

Recently the New York Times investigated\xa0Why Markets Boomed in a Year of Human Misery. This article analyzed the income, spending, and savings levels from March through November of 2020 and during that same time period in 2019. The comparison between these two vastly different years illustrates how policy, markets, and the economy intersect. Ultimately, the article reveals a sharp distinction between the haves and have-nots during the pandemic.

Incomes actually increased in 2020

It may be hard to believe, but the study that the article referenced shows that salaries and wages only fell 0.5% during the nine months of the Covid pandemic. This is due to the fact that the millions of people no longer working were disproportionately in lower-paying service jobs while higher-salary jobs were largely unaffected.\xa0

Due to the CARES Act, most households received $1200 stimulus checks. That coupled with an expansion in unemployment insurance programs prevented an income collapse. It turned out that Americans\u2019 cumulative after-tax personal income was actually $1.03 trillion higher from March to November of 2020 than in 2019, an increase of more than 8%.\xa0

Americans spent less in 2020 than in 2019

While Americans were earning more in 2020 than in 2019 they ended up spending less. Spending on services like restaurants and travel fell by $575 billion, or nearly 8%. Instead, that money went to spending on durable and non-durable goods. Overall, American spending decreased by $535 billion.\xa0

Savings have reached record levels

Since Americans were earning more and spending less that meant that savings rates increased dramatically. From March through November 2020, personal savings was $1.56 trillion higher than it was in 2019 -- a rise of 173%! Before the pandemic savings rates were at 7% and spiked to 33.7% in April. This was its highest level on record, dating all the way back to 1959.\xa0

These findings are quite unexpected during this time of worldwide crisis. If there is a lesson to be learned here it\u2019s that when the world expects the stock market to zig more often than not it will zag. Remember that the next time the world throws us an economic curveball.\xa0

Tune in to find out the answers to our listener questions!

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