Markets Reach New Highs in 2020
Global equity markets pulled back in October, turned in some astonishing returns in November, performed admirably for the month of December and closed out the fourth quarter of 2020 with new record highs.
While many are happy to see 2020 in the rear-view mirror, the performance for the last quarter and for all of 2020 for the major U.S. indices was nothing short of impressive, especially given the headwinds of COVID-19 and the drama surrounding the presidential election. For Q4 and the 2020 calendar year:
- The DJIA added 10.2% in Q4 and rose 7.3% in 2020;
- The S&P 500 added 11.7% in Q4 and rose 16.3% in 2020; and
- NASDAQ added 15.7% in Q4 and rose 43.6% in 2020.
The themes that drove the markets in the fourth quarter were positive economic data, talk of another stimulus package and the first COVID vaccines being distributed around the world. Yes, there was plenty of election noise throughout the quarter, but in many respects, the markets seemed to ignore the political chatter.
For most of the quarter, Wall Street, and Main Street did hold their collective breath until President Trump signed the $900 billion COVID-relief bill, which will provide much-needed relief to small businesses and direct payments to individuals and families.
And while there was hope that those payments might be increased to $2,000, those hopes were put on hold until at least 2021.
- Volatility, as measured by the VIX, trended modestly lower from 26 to 23 for the quarter, although the end of October saw a significant spike that pushed the VIX north of 40.
- West Texas Intermediate crude trended up for the quarter, adding about $10/barrel over the month to close out 2020 at $48.52/barrel.
Market Performance Around the World
Investors were thrilled with the quarterly performance around the world, as all 35 of the developed markets tracked by MSCI (Morgan Stanley Capital International) were positive for the last 3 months of the year. And of the 40 developing markets tracked by MSCI, all of them were positive for the last quarter too.
Source: MSCI. Past performance cannot guarantee future results
Uncertainty was Rampant in 4Q2020
As the fourth quarter wrapped up, investors were thankful that the two dominating news events of 2020 also drew to a close, as the outcome of the presidential election and more certainty with respect to a COVID-19 vaccine came into focus.
Nevertheless, there was a lot of economic data that painted a conflicting picture and to many, the disconnect between the stock market and the current economy was disconcerting at times and difficult to reconcile.
Yes, the stock market looks forward and Wall Street will be quick to suggest that current valuations, lofty stock prices and new stock market records are justified, but Main Street is having a harder time digesting that theory. Especially since it appeared that for every positive economic data point, another negative one (if not two) was announced.
GDP Sets a New Record
Three days before Christmas, the U.S. Department of Commerce released the “third” estimate of real gross domestic product for the third quarter and the “third” estimate was revised upwards from 33.1% to 33.4%. This is, of course, on the heels of the 31.4% decrease in the second quarter.
Inflation Appears in Check
The U.S. Department of Labor reported on December 10th that the Consumer Price Index for All Urban Consumers increased 0.2% in November.
From the BLS press release:
“Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment. The seasonally adjusted increase in the all items index was broad-based, with no component accounting for more than a quarter of the increase. The food index declined in November, as a decrease in the food at home index more than offset a small increase in the food away from home index. The index for energy rose in November, as increases in indexes for natural gas and electricity more than offset a decline in the index for gasoline.”
A Year In Review
Despite all the turmoil caused by COVID-19, the markets had a tremendous year. With vaccines being dolled out as we write this, and the 2020 election behind us, we, at Patriot, are optimistic looking forward. If you’d like to discuss the year that’s passed and get an update on your financial plan (or start one, if you haven’t already), just reach out and contact us.