The U.S. financial system has held strong through the first 10 months of the pandemic thanks in part to an unprecedented federal response and the unique nature of the coronavirus recession.
While the economy remains deeply damaged and far from a full recovery, early concerns about frozen bond markets and plummeting stocks have largely been left behind.
Even so, 2021 may hold new risks driven by the uncertain future of the economy and federal aid.
The stock market was among the first sectors of the economy hit by the pandemic and the first to totally recover from its early economic chaos. While the share prices of companies in hard-hit sectors remain low, rallying tech stocks and a rebound across other industries unfettered by the pandemic pushed major stock indexes to record heights.
Another coronavirus-level crash is unlikely barring a massive economic or health setback. But some experts say investors are already positioning for volatility in January, due in part to the Georgia runoff elections that will determine which party controls the Senate.
“The marketplace is indicating more uncertainty as we head into the New Year. It is not often that you see most of the major indexes setting new all-time highs and VIX index settling in the 21% to 24% range,” wrote Brian Overby, Senior Options Analyst for Ally Invest, referring to an index that rises when the stock market is volatile.
Soaring housing prices
Ultra-low interest rates and months of teleworking have prompted a surge in home purchases and sale prices.
Demand for housing has strained a dwindling supply of available homes, pushing median listing prices 13.3 percent higher than in 2019. Construction on more than 1.5 million homes began in November, and building permits rose to their highest level since September 2006.
Tighter lending standards have kept banks from making the same subprime loans that fueled the housing bubble collapse before the financial crisis in 2007 that sparked the Great Recession. But the uncertain path of the economy and the massive gulf between homeowners and struggling renters means those prices could face pressure come 2021.