Predictions trend upward with expectations for a gradual, yet perhaps uneven, recovery dependent largely on the success of the COVID-19 vaccines on the way.  

A year that brought the world the most pronounced economic shock in generations is nearing its end with a strong dose of positive news. Reports of COVID-19 vaccine efficacy that surpassed even the most optimistic assumptions suggest that by the middle of 2021 we may have vanquished our greatest pandemic fears and can look confidently to better times ahead. 

The summer brought an economicrebound and a continuation of the stock market rally that began in spring. Inlate September, the Federal Reserve Bank of Atlanta's GDPNow tracker estimatedreal Gross Domestic Product (GDP) growth of 32.0% for the third quarter. Allthree of the major Wall Street benchmarks advanced in Q3; the S&P 500 addednearly 8%, ending the quarter up about 4% for the year. Even so, U.S. equitiesslumped in September as traders worried that the stock market might be gettingahead of the economy.

When the stock market rallied back in the beginning of March, it seemed the market was anticipating a V shaped recovery. Six months later, some of the optimism seems justified.  The economic recovery has shown surprising resilience in the face of increasing levels of coronavirus infections and expiring fiscal stimulus.

TheAmerican mathematician Claude Shannon famously established a lower bound forthe number of possible moves in a typical chess match: around 10120. That’s 10with 119 zeroes after it. Reflecting on when the COVID-19 crisis began tounfold across the globe, I think the Shannon number adequately captures thebreadth of possible economic outcomes at the time.

Stocks advanced relentlessly last week on positive COVID-19 developments, encouraging economic data, and a supportive policy shift in the Fed’s approach to its target inflation rate.  The Dow Jones Industrial Average increased by 2.59%, while the Standard & Poor’s 500 jumped 3.26%. The Nasdaq Composite index leaped 3.39% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.19%. 

Stock prices rallied in July as further development of a COVID-19 vaccine and better-than-expected corporate financial reports encouraged investors.