Moving Up: Stock market gains lead to record year for trust companies

Diane Homan: Stimulus led to higher consumer confidence than expected in 2020.

It was an unlikely year of growth for the area’s largest trust company.

Here’s the backdrop: A global health pandemic ravaged the country last year, leaving 380,000 people and counting dead and millions unemployed; the federal government pumped more than $3 trillion in the economy through stimulus packages; the Federal Reserve held its benchmark lending rate near zero; and the U.S. stock market soared.

Meanwhile, Commerce Trust Co. in Springfield ended the year with records in assets under management and assets under administration, at $2.1 billion and $1 billion, respectively, said Market Executive Christopher Sweet. He said clients transitioning more assets to Commerce and moving cash to the market primarily drove growth from $1.9 billion in assets administrated in June 2020.

“You can’t make any of this up,” he said. “It wouldn’t check any of the boxes for what you would think would be a successful year.”

Sweet said the stimulus checks paid directly to Americans and near-zero rates from the Fed are big factors to growth in the stock market.

“With interest rates so low, it’s pretty much put their foot on the pedal for people to put money in risk assets,” he said.

The U.S. stock market ended 2020 with record highs. The S&P 500 index was up 16%, the Dow Jones Industrial Average up 7.25%, and Nasdaq up 43.6%.

Sweet said while his clients, required to have at least $500,000 in investable assets, didn’t receive the direct stimulus checks, many Americans did put that money into the stock market. Data from the New York Federal Reserve found roughly 36% of Americans saved the money from the first stimulus check.

“With people probably getting soon to be $2,000, a lot of that money is fueling stock market growth,” he said. “Where is your best opportunity to grow your wealth? I think right now it’s the stock market.”

Market outlook
At Central Trust Co., Executive Vice President and Springfield Market Executive Diane Homan said the trust company grew to $1.4 billion in assets under management in early January from $1.2 billion in June 2020. It wasn’t the year she expected following government and business shutdowns.

“We didn’t expect the stimulus funds and the consumer confidence would be what it was,” she said. “Overall, we’ve seen household income and the confidence in the economy increase after the bump of the road we experienced in the first quarter of 2020.”

A Fed report in December 2020 showed household net worth rose 3.2% in third quarter 2020 to $123.52 trillion, a new record. Household debt rose, as well, 5.6% to $16.4 trillion.

She said the growth is expected to continue.

“We’re still bullish on the market,” Homan said. “The government has even promised more stimulus. As long as they are pumping money into the economy, we believe the market will continue to be strong barring an event that none of us can control.”

Sweet agrees on the market’s future.

“Our economists believe that we have a long runway ahead,” he said. “We could have a correction, that’s normal, of 10% or more. That’s OK. People can’t worry about what the market is going to do over the short term. You’re going to be fine the longer you have to invest.”

Homan said with the growing federal deficit, “we’re going to have to pay for it at some point,” but interest rates remain low and inflation has not caught up yet.

Now in 2021, as millions of health care workers and older Americans have begun to receive the COVID-19 vaccine, that’s proving a bright spot for the economic outlook.

“Anything good for the economy is going to be good for everyone. Vaccines are going to be good for the people who are unemployed right now, and we’ve got to help these people,” Sweet said. “There are 15 million people still unemployed who are effectively going through their own depression, and you have the stock market hitting new highs today. You’ve got the haves and the have nots.

“The market is just looking past of all this. The market tends to look forward.”

Wealth trends
Amid the growing stock market and asset expansion, the United States also is undergoing the greatest transfer of wealth in history as baby boomers pass wealth to the next generation. Various news reports estimate this could equate to between $30 trillion and $68 trillion over the next two or three decades.

Homan said she saw that transfer heightened last year as a large number of client died in 2020 compared to recent years.

“The majority of those second generation of beneficiaries are retaining those funds for investment purposes. They are continuing the goals that their parents or grandparents set,” she said. “Many of them are probably going more aggressive because they have a longer horizon in most cases.”

In another avenue of wealth growth, Sweet said he’s seen a growing number of clients sell businesses.

“The pandemic will probably accelerate that,” he said. “In some cases, the next generation just doesn’t want to take over the vision.”

Sweet said for most people, the best way to grow wealth is to invest in the stock market and stay in it.

“When the market got hit, I credit our team for keeping our clients focused on our long-term goals and not jumping out of the market. Because if you do, you have to figure out when to get back in,” he said. “It snapped back so quickly that you (can) lose so much of your return.”

Homan agreed with the strategy of keeping with objectives and not bending to market whims.

“Stay the course,” she said.