2. Unemployment Trends Vary, But a New Business Boom Emerges

While the overall U.S. unemployment rate has shifted back toward historic norms, the unemployment rate for minorities, the less educated, and the young is still more than double the college-educated rate. The uneven recovery in employment is likely to have longer-term ramifications for economic growth and consumer sentiment. However, a record number of entrepreneurs—more than 1 million—sought out new business applications in 2020, signaling the potential for a new wave of innovation.

Source: U.S. Bureau of Labor Statistics

3. Mixed Recovery for U.S. Firms, But Strong Cash Positions Lower Uncertainty

In 2021, nearly two-thirds of S&P 500 firms are expected recover to 2019 earnings-per-share levels, a potentially conservative estimate based on recent trends of firms substantially outperforming analyst expectations. While smaller firms are expected to recover more slowly, firms of all sizes have bolstered cash on balance sheet to levels not seen in over 50 years. Strong and affordable access to capital markets has been a critical factor behind the increased corporate liquidity.

4. Debt Markets Rebound at Record Pace

Active policies by central banks have helped to facilitate a rapid recovery of debt markets. The recovery of spreads has led to high levels of Investment Grade (IG) and High Yield debt issuances. The rise of zero- or negative-yielding corporate debt globally has made the U.S. IG market essentially the only place to find yield underpinned by strong credit quality. This supports the likely continued strength of the market, with attendant benefits to the U.S. economy also likely.

5. Rating Agencies Took Action

Throughout 2020, Moody’s and S&P took several ratings actions to reflect market dynamics, with the vast majority impacting non-IG firms. While S&P has issued more downgrades (7.4x) than Moody’s (4.8x), the overall result is that ratings between agencies are now more aligned. While High Yield firms have taken the brunt of ratings actions, the debt capital markets have remained supportive.

6. Equity Markets Show Resilience

Equity market performance has been extraordinarily strong despite the pandemic, with even smaller firms recouping their losses—and then some—by the end of 2020. Equity market strength has supported an explosion of issuance, including record IPO activity dominated by SPAC listings, and there is potential for additional upside in 2021.

9. Delivering Growth Becomes Harder, but Investor Interest Expands

Factors supporting growth (e.g., lower taxes, higher margins) are facing headwinds and organic investments have steadily declined across the market over the last several decades. Investor interest in is growth increasing, but opportunities are more limited. This has caused the relative value of growth in the market to reach multi-decade highs: 160% higher than the past 20 years. The longstanding trend of high-growth firms receiving outsized valuation premiums was evident even prior to COVID-19, and could persist throughout the recovery.

10. M&A May Be the Great Equalizer

M&A activity is being driven by market underperformers more than ever as firms seek paths to growth, efficiency and resiliency. Regardless of inequalities highlighted by the pandemic in terms of recovery, employment, and market performance, M&A strategies have remained attractive for just as many market underperformers as outperformers. Despite a volatile year that saw all-time high VIX levels, M&A activity was comparable to other non-recessionary years during the past two decades—and may be the great equalizer that can boost recovery regardless of size, scale, or past performance