For Main Street and much of the country, 2020 cannot end soon enough. But for Wall Street, the year ended on a much happier note, as investors hit record highs as they bet government controls and vaccinations will drive an economic recovery in 2021.
The market’s view of the coming silver liners follows a year that includes both a bull market and a bear market. “We’ve had a lot of movement here, and the economy was disrupted very quickly,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CBS MoneyWatch.
“We were down a third from January 19 to March 23,” noted Silverblatt of the S&P 500’s pandemic-induced freefall, its fastest yet.
But that was then. Investors in the S&P 500 stock index are seeing total returns of nearly 18% for the year, with most of that gains coming from just three tech giants: Apple, Amazon and Microsoft. “Fifty-eight percent are from those three companies, and the top 24 are taking it away,” Silverblatt said Wednesday.
The technology-loaded Nasdaq composite rose 43.6% in 2020; the S&P 500 ended the year at a record high, up 16.3%; and the blue-chip Dow Jones industrials index rose 7.2%, or 2,068 points, to close the year at 30,606.
“We are in a better place to exit the year than September as the rally is broader,” said Art Hogan, chief market strategist at National Securities, of a recent shift from home-based stocks to economically sensitive stocks. “There is a pent-up demand for things we haven’t been able to do.”
Biggest Winners: Etsy and Tesla
Those shares of working from home include Etsy, up about 330% year-to-date, a profit only higher than the S&P 500 by electric carmaker Tesla, up just over 730%, according to Silverblatt’s calculations. Tesla stocks benefited further in December when the highly rated auto company joined the 500 stock index that generally serves as the benchmark for the U.S. stock market.
The worst performers include Carnival and Norwegian Cruise Line, both down nearly 60% during the year, due to a cruise and travel industry hammered by the coronavirus.
Nine months after the pandemic started, employers are still there cut jobs as coronavirus infections continue to spread, leaving many people at home and prompting state and local governments to re-impose restrictions on social distance for businesses.
“Half of the people who lost their jobs during the recession are still out of work, so the market is forecasting a pick-up in economic activity next year,” Hogan said of hopes for a break from COVID-19’s economic impact on the US job market. . For example, weekly claims for unemployment benefits averaged 1.45 million in 2020, compared to about 220,000 in 2019.
Silverblatt agrees that investors are counting on relief from a new round of government stimulus controls and COVID-19 vaccinations, but questions whether they are ahead of themselves in terms of how quickly a return to norm could occur. As he puts it, “This market is crazy; it has a lot of optimism.”
He mentions a trend of individual investors as opposed to professional money managers hitting the market from November. “People want to buy, we are building a great second half.” But should the recovery not proceed as expected, Silverblatt foresees a time of settlement for equities in the coming quarters.
The easy part of 2021 is predicting the direction of economic growth and earnings, the hard part is predicting the right price-earnings ratio for stocks, said Peter Boockvar, chief investment officer at Bleakley Advisory Group. A price-earnings ratio, or P / E ratio, is used to determine whether a company’s stock price is high or low in relation to that company’s earnings growth. “Would it [the stock price] Be 22 times [earnings]? 18 times? 15 times? 25 times? “Boockvar asked.” Depending on this, there is a wide variation in possible S&P 500 outcomes. ”
Global stock markets ended the year at record highs and the dollar remained at two-year lows.
Dollar drugged
The dollar’s weakness has “more or less disappeared under the radar with everything else going on, but I think it has the potential to become more relevant in 2021 as this is the first place that pushes the market becoming US debt and deficits, “Boockvar wrote in a year-end customer note. “A further weakness of the note would then affect inflation and long-term interest rates.”
Interest rates are expected to rise as the economy recovers further with a vaccine.
Commodity stocks – particularly oil, gas, agriculture and copper – continue to be favored by Boockvar, who also likes “ precious metals, banking stocks, value stocks that didn’t kill technology and Amazon, some travel and leisure names, emerging Asian stock markets, and also the UK and Turkey. “