2020 stock market report

During the most unpredictable year for stocks in a long time, tech stocks won.

Key takeaways

  • 2020 will be remembered by most investors for the impact of the COVID-19 pandemic.
  • Global stocks suffered one of the quickest declines on record, but broadly recovered and hit new highs by year-end.
  • Technology stocks outperformed the broad US market, while energy stocks had another year of double-digit losses.

2020 was another strong year for most asset classes. Some of the highlights include:

  • Global stocks (as measured by the MSCI World Index) climbed 14%.
  • Gold (as measured by Nymex per troy ounce) soared 28%.
  • Bonds (as measured by the Barclays Aggregate Bond Index) gained 5%.

However, not all asset prices increased in 2020, and certainly not all assets within each asset class had a positive year. For example, oil (as measured by WTI crude) plunged 24%, as slowing global economic activity due to the pandemic cut into energy demand. And within stocks, a plethora of businesses have been devastated or forced into bankruptcy as a result of the COVID-19 pandemic.

Nevertheless, it was a mostly positive year for investors. Global stocks have now posted 2 consecutive years of double-digit gains. In 2019, the MSCI World Index gained 24% and US stocks, as measured by the S&P 500, added 28%.

While the previous 2 years have been bullish for stocks, 2020 was—quite obviously—unlike any year ever for investors. In February and March, US stocks experienced their swiftest decline of 20% or more on record as COVID-19 infections grew exponentially around the globe. But by year end, the S&P 500 gained roughly 15% (see US stocks rise double digits for 2nd straight year chart), supported by historic levels of government spending and monetary policy.

In Fidelity’s 2021 outlook, Jurrien Timmer, director of global macro at Fidelity, notes that the narrative in the markets has recently switched from the need for more fiscal policy reflation to the potential for a vaccine-driven recovery. He postulates that fiscal stimulus (and other efforts to support the economy) may already be priced into US stocks, and that may result in modest returns for stocks in the new year.

Timmer also thinks that emerging markets may be an area of opportunity in 2021. He sees a weak dollar and EM stocks trading at their lowest relative valuation to the US in almost 20 years as 2 of several reasons for potential outperformance.

Tech, consumer stocks blow past broad market

Diving deeper into US stock performance during 2020, the technology sector added more than 40% for the 2nd consecutive year (tech stocks gained 48% in 2019).1 Some of the business-related effects of the pandemic (such as increased telecommuting) accelerated what has been a multi-year trend of technology stocks outperforming the broad market (see sector performance table below).

Technology, consumer discretionary, and health care stocks have outpaced the broad market by an enormous margin over the longer term (i.e., 10 years), while all other 8 sectors have lagged the S&P 500 Index.

Sector 2020 5-year 10-year
S&P 500® Index 15% 85% 214%
Technology 41% 220% 491%
Consumer discretionary 30% 108% 350%
Communication services 20% 48% 82%
Materials 17% 69% 75%
Health care 9% 59% 251%
Industrials 8% 65% 166%
Consumer staples 6% 36% 135%
Utilities -5% 44% 99%
Financials -6% 53% 148%
Real estate -7% 13% 13%
Energy -37% -34% -42%
Data is cumulative, and returns are on a price return basis (i.e., they do not include dividends). Sector performance is based on S&P 500 sector indexes.

Unlike 2019, not all sectors finished with gains. Energy stocks lost more than 37% as global energy demand plummeted throughout 2020 amid economic shutdowns. Utilities, financials, and real estate finished in the red as well.

Fidelity’s 2021 sector outlook highlights areas of potential opportunities in every sector—including those that had a down 2020. Among those investible ideas are the global transition to renewable energy and the emergence of COVID-related trends.

The uncertainty of 2021

Developments in the COVID-19 pandemic should continue to help dictate market direction heading into 2021. This includes trends in infection rates and associated mortalities, along with the speed and effectiveness of vaccines being delivered and administered.

Other things to think about include:

  • Policy changes—A significant question remains about how government policy might change in the near future. The Biden administration has laid out a variety of plans that differ to some extent from the previous administration (such as COVID-19 policy, taxes, and regulation), with potential implications across a range of industries, if implemented.
  • Trade wars—In addition to the potential policy shifts mentioned above, trade wars may come into focus again, if the primary market risk of the pandemic eventually subsides. It’s easy to forget a pre-COVID-19 world when trade wars dominated investing headlines for much of the Trump administration. The Biden administration might take a different trade policy approach, particularly with China.
  • Relatively high valuations—The S&P 500 continues to trade at a significant premium to both its mean and median historical price-to-earnings. Global markets are trading at record highs despite the myriad of risks that might warrant lower valuations.

And, as always, you should consider anything else that may be relevant to your investment plan, such as your liquidity needs and time horizon. If you want to stay or get back on track in 2021, the beginning of the new year can be a good time to reflect on what happened in 2020, and how your portfolio may have been affected.

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