Our economy was left under an unprecedented siege in 2020, with unemployment reaching almost 15% in April and the stock market falling by almost 30% at the same time. Surprisingly, the broader stock market rebounded in December, with the S&P 500 returning 15.5% for the year.
Although S&P in the aggregate provided positive returns, several stocks within the index suffered significant losses. Among the worst performing stocks over 2020, there was a concentration of them in the cruise and traditional energy sectors. Will these sectors and their stocks recover in 2021? Let’s take a look.
Oil spill
The 10 worst-performing stocks on the S&P 500 for 2020 contained a long list of oil stocks and other traditional energy stocks. Among them were Occidental Petroleum Corporation (NYSE: OXY), Marathon Oil Corporation (NYSE: MRO), Diamondback Energy (NASDAQ: FANG)and ONEOK (NYSE: OKE) – all losing around 50% of their respective values throughout the year. This should come as no surprise, as demand for transport and travel has plummeted, affecting the need for oil and other traditional fuel sources. In addition, supply levels persisted, further depressing inventories.
While it is reasonable to expect travel to recover steadily over the year, the traditional energy sector faces strong competition from cleaner and more sustainable companies. Many investors, especially those of the younger generation, have ethical concerns when investing in any business that harms the environment. When we think of companies that are likely to grow in the distant future, those that promote fossil fuel addiction tend to be at the bottom of the list. The stocks have the potential to recover in 2021, but don’t expect too much from them as long-term purchase and maintenance.
Crossing to injury
The cruise industry suffered as much as any other in 2020, with Norwegian Cruise Line Holdings (NYSE: NCLH) and Carnival Cruise Lines (NYSE: CCL) both losing more than half of their respective values. It turns out that people do not require close quarters on a vessel separated from the land when the world is in the midst of a respiratory pandemic. I am not a seer, but it stands to reason that without a sector review and new large-scale sanitation methods – along with public adherence – turbulent waters are ahead for most cruise lines.
CCL data by YCharts
What is even less encouraging is that the vaccine’s launch took significantly longer – and is much more complicated – than originally planned. In addition, simply convincing the public that vaccines work has also been a challenging task. Given that these companies suffered tremendous losses and incurred significant debts to continue operating, I would not feel confident of a recovery in 2021. This does not mean that they will definitely never recover, but you would have a hard time finding a more besieged industry at the moment. .
Image source: Getty Images.
Don’t worry if they don’t recover
The discreet beauty of the S&P 500 index is in its self-cleaning nature. If a company’s value falls to the point that it no longer qualifies for inclusion in the index, it will be replaced. In all likelihood, it will be replaced by a faster-growing company with better long-term prospects that justify the inclusion of reference. This is another reason why simply maintaining your own index for long periods is likely to produce a more stable performance than if you tried to continually predict the winners the following year.
Instead of looking at individual stocks in specific sectors, you can consider an approach to buying and maintaining some low-cost, broad-market index funds (such as an S&P 500 index fund) covering the global stock landscape. This approach is likely to save a lot of time, effort and mental energy and, as was the case in 2020, will provide investors with a robust return.