3 Lessons from the Covid Recession
July 10, 2021
Taylor Tepper
The Covid Recession has come and gone in two lifespans of the housefly, the National Bureau of Economic Research (NBER) just declared. Its wake, of course, will be felt for much longer than the two months the recession officially lasted.
According to the NBER, a consortium of economists, the economy reached its pre-recession peak in February 2020 before bottoming out in April as the novel coronavirus spread across the world and national governments issued social distancing rules and regulations. It then began to recover in May, making it the shortest recession in recorded history.
Yet the economy is still very much affected by those dramatic months last year. The U.S. is sifting through the aftermath of the actions it took to avoid catastrophe: the Federal Reserve stepped in to save the bond market, and the federal government doled out trillions in spending to keep American households afloat while their economy was locked down. While this may have avoided severe injury to the economic system, we’re now worried about inflation, rather than depression.
Given the past 18 months didn’t play out as many predicted, it’s likely the following 18 months aren’t going to either. Therefore it’s worthwhile to reflect on what we learned in this remarkable time and how we can use those lessons to help our personal finances in the future.
Expect the Feds to Act
If ever there was a time for the federal government to prove too weak to respond to a crisis, it was the early months of 2020.
The political airways were atwitter with a throng of candidates vying for the Democratic nomination for the presidency, each doing whatever they could to make themselves stand out. Part of that included differentiating themselves as much as possible from then-President Donald Trump, who had just been impeached by the Democratically-led House of Representatives. Republicans, though, controlled the Senate and were in no mood to compromise with the other chamber.
Yet even a dysfunctional political class proved it could move quickly.
Just four days after the stock market finished a month-long 34% drop from its Feb. 19, 2020, highs, Trump signed a $2.2 trillion relief package that even a divided Congress quickly approved.
Aided by thousands in direct stimulus checks, ramped up unemployment benefits and a myriad of business loans, investors gave a sigh of relief and the S&P 500 ultimately returned more than 16% last year, or almost 65% from its March low.
Investors that kept to their long-term plans were able to reap the benefits.
“It is important to stay disciplined and disengage emotionally as much as possible,” says David McInnis, a principal at East Paces Group, an investment management firm. “We tried to keep our clients composed so they wouldn’t make decisions based on short-term circumstances, but on what they need 10, 20, 30 years from now.”
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