As recessions go, 2020 was clearly different. At least in aggregate, household net worth increased, instead of experiencing significant economic stress. The most recent Federal Reserve data indicates that household net worth increased to $122.9 trillion in the fourth quarter, from $114.2 trillion in the year-ago period. By comparison, during the previous recession, household net worth fell sharply and then took years to recover.
The big difference is higher values for stocks, homes and a variety of other assets, such as Bitcoin, plus government cash.
Part of the $8.7 trillion increase in household net worth can be attributed to a $2.8 trillion increase in cash and equivalents, suggesting that a significant number of Americans spent less and saved more in 2020.
Now the government is in the process of throwing another $1.9 trillion into an economy that, in aggregate, is already flush with strong asset values and cash. This does nothing to minimize the serious financial crisis facing a number of individuals and small businesses.
The challenge for investors is to anticipate how this is going to work out over the next several quarters. There is really no comparable precedent to look to.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®