Paul McCartney, on the Beatles 1967 masterpiece Sgt. Pepper's Lonely Hearts Club Band, sang, "I have to admit it's getting better, a little better all the time."
To which John Lennon replied, "It can't get no worse."
What a fitting tribute to the end of 2020 and the beginning of 2021!
2020 will go down as tumultuous, heartbreaking, and crazy, marked by an impeachment (the first one, not the second one), the horrific COVID-19 pandemic, worldwide lockdowns to stop the spread of the virus, the resulting massive economic downturn, widespread civil unrest tied to policing and racial justice, masks and social distancing, virtual schooling, work from home / zoom fatigue, and a presidential election that resulted in... oh forget it, you know what happened.
Further weirdness - the Bears made the playoffs. (Ok, technically that happened in 2021.)
Oh, did I mention 2020 had the fastest bear market decline in stock market history and the quickest recovery? March saw a 34% drop in the S&P 500 Index1 as the pandemic worsened. This was followed by a rally in April, with stocks reaching their previous highs by August, on their way to record highs.
Here's a brief summary of the performance of several market indices:
|US Large Cap Stocks -
S&P 500 Index
|Total US Stock Market -
Russell 3000 Index
|International Developed Market Stocks -
MSCI World ex USA Index, net
|International Emerging Market Stocks -
MSCI Emerging Markets Index, net
|US Taxable Bonds -
Barclays US Aggregate Bond Index
Past performance is not a guarantee of future results. You cannot invest directly in an index.
But as we begin 2021, keep in mind:
Good news: 2020 is over.
Better news: Vaccines are being distributed and we did find some silver linings along the way.
Best news: 2020 is over.
Expression of the year: You're on mute.
The big stock winners for 2020: Large cap growth / tech stocks such as Zoom, Amazon, Peloton, Facebook, Netflix, and Microsoft that benefitted from the work / shop from home paradigm shift. But be careful, these stocks are now tremendously expensive relative to future growth expectations.
A strong finish:
- Cheaper value stocks and smaller cap stocks, which outperformed growth and large cap in the 4th quarter.
- International developed market stocks and international emerging market stocks, which outperformed US stocks in the 4th quarter.
Other big winners: Investors who stayed disciplined.
Lessons learned (or re-learned):
- Nothing is more important than our health and the health of our loved ones.
- We're all pretty resilient, and will adapt to the new "normal" pretty quickly.
- It's very difficult, if next to impossible, to predict the market's moves. Stick to your plan.
- Markets are forward looking. While it may seem there is a disconnect between today's difficult economic news and a buoyant market, remember that investors are looking towards the future.
- Rebalance when your asset mix drifts away from your targets. Especially when it's not easy to do.
- Take advantage of losses by tax trading.
- Diversification means owning lots of different areas of the markets that don't move in lockstep. Today's top performers and tomorrows winners may be very different.
A reason to be optimistic: 2020 is over. Once again, best wishes to all for a happy and healthy New Year!
David Rappaport, CFP®
David is the Co-Founder of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.