For Main Street and much of the country, 2020 cannot be over soon enough. But for Wall Street, the year ended on a much happier note, as investors hit record highs, while they bet that government controls and vaccinations will continue an economic recovery in 2021.
The market’s view of silver linings follows a year that includes both a bull market and a bear market. “We’ve had a lot of moves here and the economy has been disrupted very quickly,” Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, told CBS MoneyWatch.
“We fell a third from January 19 to March 23,” Silverblatt said of the S&P 500 pandemic, the fastest fall so far.
But that was then. Investors in the S&P 500 stock index achieve total returns of almost 18% for that year, and most of this gain comes only from a trio of technology giants – Apple, Amazon and Microsoft. “Fifty-eight percent come from these three companies, and the first 24 take them,” Silverblatt said Wednesday.
The technology-laden Nasdaq composite grew 43.6% in 2020; The S&P 500 ended the year at a record closing level, up 16.3%; and the Dow Jones industrial blue-chip index rose 7.2%, or 2,068 points, to end the year at 30,606.
“We’re in a better place to get out of the year than in September because the rally is wider,” said Art Hogan, chief market strategist at National Securities, about a recent move from shares at work from home to the economically sensitive. “There’s an accumulated demand for things we couldn’t do.”
The biggest winners: Etsy and Tesla
These home shares include Etsy, up about 330% so far, a gain surpassed only by the S&P 500 by carmaker Tesla, up just over 730%, according to Silverblatt calculations. Tesla shares also benefited in December, when the highly acclaimed car company joined the 500-share index, which widely serves as a benchmark for the US stock market.
The weakest performances include Carnival and Norwegian Cruise Line, both down almost 60% a year, reflecting a cruise and cruise industry hit by the coronavirus.
Nine months after the pandemic began, employers are still there job cuts as coronavirus infections continue to spread, keeping many people at home and causing state and local governments to restore restrictions on social distancing from businesses.
“Half of those who lost their jobs during the recession are still out of jobs, so the market predicts a recovery in economic activity next year,” Hogan said, hoping to have a break from the economic impact. of COVID-19 on the labor market. . For example, weekly applications for unemployment benefits averaged 1.45 million in 2020 compared to about 220,000 in 2019.
Silverblatt agrees that investors are working to benefit from a new round of government incentive checks, as well as COVID-19 vaccinations, but wonders if they will be exceeded, in terms of how quickly any recovery could occur. to normal. As he says, “This market is crazy; there is a lot of optimism there ”.
He cites a trend of individual investors, as opposed to professional money managers who have been entering the market since November. “People want to buy, we’re building to make the second half great.” But if the return fails to materialize as expected, Silverblatt predicts a moment of calculation for shares in the coming quarters.
The light part of 2021 predicts the direction of growth and earnings, and the difficult part is predicting the price-earnings ratio for shares, according to Peter Boockvar, investment director of Bleakley Advisory Group. A price-to-earnings ratio or P / E ratio is used to determine whether a company’s share price is high or low relative to the increase in that company’s earnings. “Should [the stock price] either 22 times [earnings]? 18 times? 15 times? 25 times? Boockvar asked. There is a wide dispersion in the possible results of the S&P 500, depending on that. ”
Global stock markets closed the year close to records, and the dollar has been at a two-year low.
The dizziness of the dollar
The weak point of the dollar “has gone a bit under the radar, with everything else happening, but I think it has the potential to become more relevant in 2021, as this is the starting point that reflects the market’s thoughts on growing debt and deficits. larger US ”. Boockvar wrote in a note to the client at the end of the year. “Another notable weakness would then have long-term implications for inflation and interest rates.”
Interest rates are expected to rise further as the economy returns with a vaccine.
Commodity stocks – especially oil, gas, agriculture and copper – continue to be favored by Boockvar, which likes “precious metals, bank stocks, stocks that technology and Amazon have not eliminated, some travel names and leisure, Asian stocks emerging markets, as well as the United Kingdom and Turkey. “