The shares continued their rise in 2021 on Friday, with gains for the three main market indices.
O Dow Jones Industrial Average, S&P 500and Nasdaq Composite everyone spent time in negative territory during the day, but a push at the end of the day propelled them to set a trio of all-time records.
Data source: Yahoo! Finance.
Friday’s strong session ended an extremely healthy first week of the year for the stock market. Now, some optimistic investors are wondering whether 2021 could be an even better year for markets than 2020.
Weekly earnings for markets
When you add in the performance of the week, Nasdaq once again reigned supreme. All three benchmarks were up between 1.5% and 2.5% for the week, with the Dow lagging behind as it did last year.
^ DJI data by YCharts.
Obviously, if you project these returns for a 52-week year, you can draw all kinds of crazy conclusions. Despite the immense positive momentum we saw in 2020, there is simply no way for the stock market to rise consistently as fast as this week.
The good news, however, is that, up until now, the stock price has been extremely broad:
- Some of last year’s favorite stocks kept pace in the new year. Favorite hydrogen fuel cell specialist Plug Power (NASDAQ: PLUG) skyrocketed 57% in the first week of 2021, for example.
- Other actions in areas that do not normally perform well have also performed well. Rugged industrial US Steel (NYSE: X) increased 32% at the beginning of the year.
- Marijuana stocks had a spurt to start in 2021, with election results fueling enthusiasm about the potential for federal cannabis decriminalization. Cronos Group (NASDAQ: CRON) rose more than 30% this week, and other marijuana stocks have seen considerable gains.
- Even some long-forgotten ex-highfliers have regained some of their mojo this week. 3D Systems (NYSE: DDD) it rose more than 125% when the company managed to sell an auxiliary business and said its sales in the quarter were much better than most had predicted.
There is considerable enthusiasm in the investor community. Whether this will translate into big gains after the first week of the year depends on several factors.
Image source: Getty Images.
Leaving 2020 behind
The most important question in 2021 will be whether companies have fully recovered from the economic turmoil of the COVID-19 pandemic. If the United States can administer vaccines effectively and quickly, the chances of controlling the coronavirus will increase, possibly establishing favorable comparisons for 2021 with the 2020 numbers affected by the pandemic. However, if the vaccination program stops and the case count remains high, this year may be even worse than 2020.
In addition, investors should keep in mind that winning the market depends on which market you are talking about. The Dow rose less than 10% even after taking dividend revenue into account, the S&P almost doubled that gain with an 18% increase and the Nasdaq shot up almost 45% on a total return basis. We are more likely to see 2021 returns in teenagers than there will be another 40% to 50% jump.
Finally, despite last year’s gains, many stocks are still well below where they were last year. For them, even going back would be a great achievement. Meanwhile, highfliers with huge gains in the past year may have created high hopes, but just maintaining the high stock price would be a victory for long-term investors.
2021 got off to a strong start, but there will inevitably be bumps along the way. We hope that we all have a happy, healthy and prosperous year, regardless of what the stock market does.