There is a lot of fear in the market (Some of it created by those looking to profit from it) about the current highs leading to a significant downturn, similar to what happened in 2008.
But there are key data points indicating that 2021 might be a distinctly different financial climate than 2008.
In 2008, but especially during the stagflation scenario in the 1970s, the economy experienced inflation coupled with little to no growth in the GDP. That’s not the case today, as companies are consistently reporting strong earnings growth. It’s difficult to misrepresent earnings growth numbers. Companies appear to be better prepared in 2021.
Household debt ratios are the lowest they’ve been in 40 years. In 2008, the opposite was true, to drastic effect. Layoffs and high household debt led to defaults and a chain reaction of economic hardships. Households seem to be better prepared in 2021.
Perhaps the lessons of 2008, combined with the uncertainty of the COVID-19 pandemic, have a silver lining. People are saving more. There are many reasons why the economy was able to recover and thrive during the first stages of the pandemic, and increased savings rates was definitely one of them. The incentive to save has only increased since then.
No one has a crystal ball that can look perfectly into the financial future, but there is reason in 2021 for economic optimism to replace economic fear.
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