For Main Street and much of the country, 2020 cannot end soon. But for Wall Street, the year ended on a much happier note, with investors setting record highs as they bet that government checks and vaccines will promote an economic recovery in 2021.
The market’s view of the risks ahead follows a year that includes both a bull market and a bear market. “We had a lot of movement here and the economy was affected very quickly,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CBS MoneyWatch.
“We went down a third from January 19 to March 23,” noted Silverblatt of the S&P 500 pandemic-inspired free fall, the fastest so far.
But that was then. Investors in the S&P 500 stock index are earning total returns of nearly 18% for the year, and most of that gain comes from just a trio of tech giants – Apple, Amazon and Microsoft. “Fifty-eight percent come from these three companies, and the top 24 take them away,” said Silverblatt on Wednesday.
The tech-packed Nasdaq compound shot up 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 end the year at 30,606.
“We are in a better place at the end of the year than in September because the rise is broader,” said Art Hogan, chief market strategist at National Securities, of a recent shift from home stocks to economically sensitive stocks. “There is a pent-up demand for things that we were unable to do.”
Biggest winners: Etsy and Tesla
These work at home stocks include Etsy, up about 330% year-to-date, a gain only surpassed on the S&P 500 by electric car maker Tesla, a little more than 730%, according to Silverblatt’s calculations. Tesla’s shares benefited even more in December, when the highly valued auto company joined the 500-share index that widely serves as a benchmark for the US stock market.
Worst performers include Carnival and Norwegian Cruise Line, both down nearly 60% on the year, reflecting a cruise and travel industry hammered by the coronavirus.
Nine months after the start of the pandemic, employers are still reducing jobs as coronavirus infections continue to spread, keeping many people at home and prompting state and local governments to re-impose restrictions on social distance on businesses.
“Half of the people who lost their jobs in the crisis are still out of work, so the market is forecasting a recovery in economic activity next year,” said Hogan of hopes for a truce from the economic downturn of COVID-19 in the labor market. For example, weekly claims for unemployment benefits averaged 1.45 million in 2020 against about 220,000 in 2019.
Silverblatt agrees that investors are betting on easing a new round of government stimulus checks, as well as COVID-19 vaccinations, but wonders if they are getting ahead in terms of how quickly any return to normality can occur. As he says: “This market is crazy; there is a lot of optimism there.”
He cites a trend for individual investors as opposed to professional money managers entering the market starting in November. “People want to buy, we are building it so that the second half is great.” But if the recovery does not materialize as expected, Silverblatt predicts a time to settle accounts for the shares in the coming quarters.
The easy part of 2021 is to predict the direction of economic growth and profits, the difficult part is to predict what the right price / profit ratio for the shares will be, according to Peter Boockvar, chief investment officer at the 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. “Should [the stock price] be 22 times [earnings]? 18 times? 15 times? 25 times? “Asked Boockvar.” There is a wide dispersion of possible results from the S&P 500 depending on this. ”
Global stock markets closed the year close to record highs and the dollar remained at a two-year low.
Stunned Dollar
The weakness of the dollar “kind of went off the radar with everything else going on, but I think it has the potential to become more relevant in 2021, as it is the starting place that reflects the market’s thoughts on US debt and deficits every time. bigger “. Boockvar wrote in a year-end customer note. “A major additional weakness would then have implications for inflation and long-term interest rates.”
Interest rates are expected to rise as the economy recovers further with a vaccine.
Commodity stocks – specifically oil, gas, agriculture and copper – continue to be favored by Boockvar, who also likes “precious metals, bank stocks, stocks that technology and Amazon haven’t killed, some travel and leisure names , Asian stocks in emerging markets, in addition to the UK and Turkey. “