The "My Downloads" folder was also missing.
I found a fix for the missing My Downloads folder – create one called My Downloads at C:Users. It worked – the folder picked up the download arrow when i refreshed the screen. I knew from research that the Favorites folder was called Links (as in Favorite Links) so I made a new folder named My Links in the same location and voilà! The Favorites folder in Windows Explorer worked once again.
After I restored the folders I found instructions that said running the command shell:links (type it in Start menu, Start search and press Enter) will recreate the missing folder. I can't say if it works since I already fixed my problem.