I thought it might be helpful to summarize what happened in the economy and markets in the year of COVID 2020. I remain bullish on the markets and bearing any surprises, I still believe we could see a 15% return on Stocks. We need to stay the course and continue with the strategies of the past year.
2020 offered great returns if you could stomach the ride. It was the first year since 1938 that the S&P 500 returned more than 15% while also experiencing volatility of greater than 30%. The onset of the COVID-19 pandemic led to rapid losses in February and March, followed by an unprecedented recovery as monetary and fiscal policy were enacted. The initial rebound was led by tech, with the Nasdaq as the year’s top performer with a 43.7% gain. But cyclical and small-cap stocks powered the market to end the year. Globally, Asia’s relative success in containing the virus led to outperformance while European markets lagged.
Core interest rates plunged as the Fed slashed policy rates 1.75% to the zero-lower bound in response to the pandemic. Aggressive QE helped hold long-term rates low, as the 10-year Treasury scraped below .50% at the height of the crisis and ended the year 1.00% below where it began. Credit markets remained resilient with the help of policy and a strong economic recovery. Spreads are set to end the year close to where they began as default rates have remained low.
Commodity market performance arguably reflected the 2020 economic reality more accurately than equity markets. WTI crude fell -20.54%, finishing the year at $48.52/bbl as the pandemic caused a rapid decline in global energy demand. Massive production cuts from OPEC+ and market-driven declines in the U.S. and Canada helped stabilize markets. Gold, a safe-haven asset, climbed 24.42%, while the USD fell -6.69%, the second-largest annual decline since the GFC.
What a year! The biggest quarterly GDP contraction on record in Q2 with a -31.4% drop followed by the biggest quarterly gain of 33.4% in Q3. The aggressive fiscal stimulus helped the consumer ride out an epic displacement in employment and gave our economy strong momentum into year-end. As COVID-19 resurged in the winter, consumer spending has moderated, and consumer confidence has wavered.
2021 growth expectations are high, but will likely hinge on vaccine distribution, a more stable return of the services sector, and continued gains in employment. I believe that commercial real estate and hospitality industry will not begin their growth back to normal until mid-year and will take about two years to recover the losses. I am confident that this will happen, and those industries will be better as a result due to policy changes and add-ons.
Happy New Year…keep the faith as the resilience of the financial markets was quite evident in the second half of last year into this year.