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2021 will harden the winners' and losers' brackets created by the pandemic economy

Heading into 2021, the economy is in a state of gross divergence, presenting opposing narratives that are drifting further apart, creating ostensible winners' and losers' brackets.

Why it matters: The pandemic has accelerated shifts in the economic makeup of the U.S. and the world. Those trends are being further cemented.


The economy and stock market are diverging.

  • The Nasdaq's 42% rise year to date in the face of a U.S. economy expected to contract by 3% is perhaps the most jarring example yet. But economic growth has been softening for years as equity prices — especially for Big Tech companies — have boomed.
  • Since the global financial crisis in 2008, U.S. GDP has averaged 2% growth, while the Nasdaq has averaged an 18.1% gain, not including 2020.
  • From the Nasdaq's inception until 2009, the index averaged a 10.6% annual gain while the U.S. economy had grown by an average of 3.1%.

The fortunes of the young and old are diverging:

  • Higher housing costs mean more equity and higher resale values for homeowners, but also higher rent. Similarly, advances in health care mean older people are living longer and able to accrue the benefits of rising asset prices rather than passing them on to the next generation.
  • That directly benefits older Americans largely at the expense of younger ones, who are moving out of large metros like New York and LA on the coasts and toward places like Phoenix and Denver that still offer vibrant cultural life but lower rent prices.
  • The median age of all U.S. homebuyers has risen from 31 in 1981 to 47 in 2019.
  • The slow recovery in the labor market and real economy also is impacting childbirths, researchers at Brookings say.
  • They estimated in June that the U.S. would see 300,000-500,000 fewer births this year. They noted in an update last week that the declining availability of child care and school closures could be worsening the expected 2020 "baby bust."

Credit markets are diverging:

  • For large public companies with access to debt markets, credit is cheap and widely available. The ICE Bank of America investment-grade corporate bond index shows that yield spreads have returned to the historic lows seen before the coronavirus pandemic upended markets in March.
  • Credit from banks to smaller businesses and individuals, however, remains historically elusive and expensive. The percentage of domestic banks tightening standards on consumer loans and credit cards, and the percentage tightening standards for commercial and industrial loans are both at their highest levels since 2009 (excluding levels seen earlier this year in Q2 and Q3).
Data: ICE Data Indices via FRED, Board of Governors of the Federal Reserve via FRED; Chart: Axios Visuals

Loan growth at U.S. banks has been declining over the past three quarters, as banks have tightened their lending standards for consumers and small businesses, the Fed's latest survey of senior loan officers shows.

On the other side: U.S. companies had issued nearly $5.1 trillion of corporate bonds and loans, including riskier leveraged loans, through Nov. 26, according to a WSJ report citing Refinitiv data.

  • Companies' cash holdings rose to a record $2.1 trillion at the end of June, according to a report from Moody’s, up 30% from the same time last year and higher than the previous peak of nearly $2 trillion in 2017.

The big picture: The growing role of central banks to sustain the economy has meant that financial markets have been the major beneficiaries of radically increased liquidity.

  • Little of that has trickled down to average consumers and small businesses seeking help from banks that largely have been uninterested in providing financing to smaller borrowers in uncertain times.

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