What we saw, what is here to stay and what is no longer common

The past 18 months have seen several trends come and go.

An increase in our technological dependence.

Assets and indices have hit major records time and time again, only to drop slightly and once again surpass their previous highs.

Nearly unprecedented levels of government support even surpassing efforts made in 2008.

With all the changes sweeping the landscape, it’s hard to succinctly summarize what’s here to stay and what’s already gone. Namely, here are 10 trends in the pandemic era that changed our lives – then mainstreamed into society or vanished from the mind.

Consumers, businesses and the economy in general

1. As the economy faced extremes, trends followed.

The past two years have been stressful, and stressful situations often lead to extremes. In this case, the pandemic has put pressure on our lives in all directions, forcing us all to make new adaptations.

Some, such as the rise of retail investors and the proliferation and standardization of remote working, look set to stick around. But others, like the rise, fall, and return of the meme stock craze and the burst and recovery of the cryptocurrency bubble, keep coming and going.

The end result is an economy that changes, adapts and oscillates faster and more unpredictably than before the pandemic. And it has much less to do with market volatility than the way we conduct our business and live our lives.

2. The digital economy as we know it has changed forever.

One of the most significant (and possibly permanent) changes brought about by the pandemic has been to accelerate America’s adoption of digitization.

As employees were forced to leave the office to work from home, businesses were forced to spend time and money on the integration of new hardware. When laid-off non-essential staff eschewed service work and turned to the digital home-work economy, these technologies spread faster and further.

As they became more integrated into society, several core technologies, including collaboration software, cloud storage, and digital payment services, were forced to improve. In turn, this accelerated their impending assimilation into finance, health care and the economies of freelancers and odd jobs.

3. Consumer spending has reached new heights…

Consumer spending is a key driver of economic growth and stock prices. Thanks to government stimulus checks, expanded child tax credits, and near zero interest rates, the economy – including the housing market – has started to swell. The vaccine rollout has also helped drive families with cabin fever out of their homes in search of a new normal.

These conditions contrast sharply with the 2008 recession, which saw consumers burdened with debt, defaults and foreclosures. And because banks remain strong – in part thanks to regulations enacted to preserve capital – consumer spending and lending continue to hit new highs.

4.… And consumer savings too.

But before consumers spend, they save. Between December 2019 and April 2020, consumer savings increased from 7.2% to 33.7%. At the same time, spending initially fell 12.6% as the economy slows, doors close and unemployment soars.

However, this trend hid – and continues to hide – a dark secret. Although high-income families continue to save and cut non-essential expenses, low-income families are still spending the same as they were before the pandemic. Unlike their upper-middle-class counterparts, their income cannot support the setting aside of savings, further relegating savings and wealth to those who are already wealthy.

The role of the Federal Reserve

5. The Federal Reserve has pushed the stock market to all-time highs.

One of the main drivers of historic stock market gains in the pandemic era has been the involvement of the Federal Reserve. Chaired by Jerome Powell, the Fed has put in place aggressive policies to fight the recession, including near-zero interest rates, a massive bond-buying program, and measures to encourage and maintain the flow of credit. .

First, the Fed reacted to the public health crisis by keeping the economy afloat. But now he has to consider backtracking, which may scare off short-term investors. As the Federal Reserve cuts its bond buying program, the stock market could experience slow price deflation.

Still, that won’t stop Powell from doing what needs to be done. As he said in 2017, protecting the financial system from volatility is the role of the Fed – and financial market volatility only falls within the Fed’s jurisdiction when the first is threatened.

6. Rising inflation is here to stay (for now).

However, the Federal Reserve faces another problem: rising inflation. In October, inflation hit a 31-year high as consumer prices jumped 6.2%.

That leaves the Fed on a precarious tightrope: on the one hand, the highest inflation in three decades, spurred by mad spending and nationwide shortages. On the other hand, five million jobs were lost at the start of the pandemic. And with the Great Resignation in full swing, those positions might not be filled any time soon.

For now, at least, the Federal Reserve plans to let inflation run its course and let the labor market continue to recover. Powell has argued that rising inflationary pressures are temporary byproducts of the pandemic, such as the current employee market and widespread product shortages, and expects inflation to be “transient.”

7. Bond markets have reacted to the government’s stimulus policies.

Another impact of the Federal Reserve’s pandemic policies is the rise in long-term interest rates. As rapid growth rebounds and the Fed remains committed to easing its typical 2% inflation target, investors appeared poised to take advantage of their laissez-faire approach.

But since not all bonds have been affected equally, it may be time to consider staggering bond purchases to capture the biggest gains. At the same time, high yield corporate bonds and emerging market securities look particularly attractive for portfolio earnings for some investors.

The rise of at-risk retail investors

8. New investors have flocked to stocks.

One of the most significant trends in the pandemic is the sudden surge in the number of retail investors. Retail investors injected billions into the stock market in 2020 and 2021, in part thanks to the rise of easy-to-use investing apps. Many of these investors come from younger generations, as baby boomers age in the demographic generally advised to focus on fixed income securities.

And because Millennials are now the predominant generation in the workforce and the securities markets, their whims will soon dictate the actions that lead the way in the future. And it’s no surprise that their favorites tend to be disruptors: stocks that, like them, seek to change the way we interact and think about technology, the economy, and society in general.

9. Too many investors set their sights on the winners.

Another new trend in the pandemic stock market is the emphasis on “winning” investments. These include disruptive and outperforming tech stocks, companies caught up in the meme stock craze, and cryptocurrency holdings.

While betting on winners is a natural impulse that can generate big wins, it is riskier than a diversified buy and hold strategy. If the winners control an inordinate proportion of an investor’s holdings, a market correction can cause the entire portfolio to fail.

Unfortunately, if the WallStreetBets saga is any indication, it’s unlikely that this is a pattern that will end anytime soon – even if it’s for the best that it does.

10. Investor appetite for risk has increased.

Together, these factors paint a particular picture. Despite recent evidence that stocks are not foolproof and the Federal Reserve’s warning against a pervasive “high risk appetite”, retail investors are looking for disproportionate risk. Whether it’s winners, stocks memes, or cryptocurrency, the thrill of chasing gains is hard to overcome … even as analysts denounce many market leaders as being overvalued relative to their fundamentals.

Like it or not, many trends are here to stay

Over the past year, stocks have performed admirably in a besieged labor market and rising inflation environment. As some pandemic trends look set to continue, it’s time to gain exposure to assets that are expected to benefit from long-term shifts in consumer spending, digitization and demographic shifts.

At the same time, betting heavily on the Federal Reserve’s inflationary policies and the return of retail investors to traditional wisdom seems to ask too much at the moment. For now, it’s the age of disruptors – and investors will have to adapt.

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