Massive stimulus over the past four months is mostly used up now, and yet more than half of the lost jobs are still lost, so this could result in a decrease in income and spending going forward. Image: astudio/Shutterstock.com

Lyn Alden

The C Fund has fully made back all of its losses in 2020, and is now at highs that were last seen in February, before COVID-19 and this year’s recession affected markets.

Here is a chart of the S&P 500, which the C Fund tracks:


In addition, the C Fund also includes reinvested dividends, which puts it roughly one percent ahead of the what the chart suggests.

Small cap indices and international indices still have a bit of catching up to do, but with dividends they are also pretty close to their highs.

Reliance on Fiscal Spending

It’s historically unusual for the stock market to have made such a quick rebound, even as the biggest reduction in employment in modern history is still working its way through the system.

Specifically, even as the market is back to all-time highs, the total number of workers has not yet recovered even half-way. This next chart shows the number of employed people in blue, and the total U.S. stock market (measured by the Wilshire 5000, which includes large and small public companies) in red:

Chart Source: St. Louis Fed


Stock prices fell less dramatically than one would have traditionally expected from this level of employment loss, and then recovered more quickly than usual.

A big reason for that is due to government spending, which replaced the lost unemployment income over the past 4 months to a much greater degree than is common in recessions.

Even as GDP is down, total employment is down, imports and exports are down, industrial production is down, and capital spending is down, personal income and retail sales are actually up year-to-date, rather than down.

Personal income jumped straight up in this recession, and retail sales had a brief shock but then quickly rebounded to new all-time highs:

Chart Source: St. Louis Fed

The government sent out one-time $1,200 stimulus checks to employed and unemployed people, sent $600/week in extra federal unemployment benefits on top of normal state unemployment benefits to unemployed people, expanded the coverage of those unemployment benefits to include self-employed people that wouldn’t normally be covered by them, provided corporate bailouts for hard-hit industries, and provided over $500 billion in PPP loans to small businesses across the full range of industries, which mostly will be forgiven and therefore turn into grants.

All told, a couple trillion dollars were injected into the economy, both to consumers and businesses, and so even as employment and most economic indicators are way down, personal incomes on average went up.


Here is a chart of government transfer payments, comparing this recession to the previous three recessions:

Chart Source: St. Louis Fed

So, many people were still able to pay rent and mortgage, buy groceries, and even buy discretionary items while unemployed, which means that many companies suffered smaller losses than they otherwise would have.

It will be interesting to see how this dynamic plays out going forward. This large amount of fiscal stimulus over the past four months is mostly used up now, and yet more than half of the lost jobs are still lost, so this could result in a decrease in income and spending going forward.

Congress and the President’s team have been working on another round of fiscal stimulus to provide aid for the rest of this year, but that has been gridlocked due to a variety of differences between the political parties.

Therefore, when managing portfolio risk, and making investment allocation decisions, it’s important to realize that a lot of the current investment landscape is heavily impacted by fiscal decisions by policymakers over the coming months; more-so than in most periods of history.

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Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.

FERS Retirement Guide 2022