For sheer drama, the past year has been difficult to beat the performance of global financial markets. Except possibly through the US presidential election and its aftermath.
December 2020 delivered modest gains compared to the massive rallies in April and November: 3.3% for the (INDU), 3.7% for the (SPX) and 5.7% for the (COMPX).
December's performance was good enough for the Dow and S&P 500 to set a record year-end record: 30,606 for the Dow and 3,756 for the S&P 500. The NASDAQ year-end close of 12,888 was just 11 points lower-time closing time of 12,899, set on December 28
For the year, the Dow added 7.25%, with 16.3% for the S&P 500.
The NASDAQ surged a whopping 43.6% – the best performance since 2009's 43.9% recovery from the traumatic market crash of 2008.
COVID Risk, Market Foam Still In the game
However, to get these results for 2020, the markets had to endure another trauma: the COVID-19 pandemic, which infected millions and caused more than 350,000 deaths in the US and at least 1.8 million deaths around the world. much higher. One concern is that the foam in the stock market as it opened in 2020 has not dissipated.
There is hope that the development of new vaccines to combat the virus will reduce casualties and deaths and boost economies around the world. But the tensions in 2020, including from the US presidential election, could drain some investors.
When the pandemic first emerged from Asia in the winter of 2020, governments locked up entire populations, especially in Europe and parts of the United States.
Markets panicked in response. The S&P 500 was down 35.4% from its high on February 19 to the low on March 23. Since then, the index has risen 71.4%. (For perspective, it took 17 months for the S&P 500 to drop 56.8% between the October 2007 high and the March 2009 low.)
prices craters. West Texas Intermediate, the US benchmark, fell below $ 20 a barrel for the first time in years and even turned negative for a day in April. WTI only crossed $ 40 again in July. While prices were up nearly 27% in November and 7% in December, the $ 48.52 closing price on Friday was still 21% lower for the full year.
Baker Hughes's US hovered around 800 in the first quarter of 2020 when panic hit. The count fell to 244 in mid-August. While the count now stands at 351, it is still 55% lower than in March.
Due to the economic panic, the Federal Reserve and central banks around the world cut interest rates and tried to increase available credit. Governments, with mediocre results, hastily tried to implement stimulus packages.
The much-watched audience dropped from 1.92% at the end of 2019 to 0.92% on Thursday. (It was 2.47% on January 20, 2017, the day Donald Trump was sworn in as president.)
It is possible that the Fed will not increase its policy interest rates until 2022 or later because of the general weakness in the US economy. The unemployment rate in November was 6.7%; the first report for December is expected Friday. In the week of December 20, the total number of claims for unemployment was 787,000, after reaching nearly 7 million in March. However, before the pandemic broke, unemployment claims were around 200,000 per week.
Many Opportunities, Also Many Losses
However, the pandemic created many opportunities for companies targeting clients who are not affected by layoffs. These include:
1. Developers of coronavirus vaccines. It is the small companies whose shares emerged as winners. Pfizer (NYSE 🙂 ended the year with only 6%. AstraZeneca (NASDAQ :), the British pharmaceutical giant, was up 0.3%.
The reason for the dichotomy is that Big Pharma has a lot of drugs on the market and more in the pipeline, but there is no pricing power for their drugs. But US shares of BioNTech (NASDAQ 🙂 Pfizer's German partner in the development of the vaccine skyrocketed 140%.
Moderna (NASDAQ :), the biotech whose own vaccine has received US approval, was up 434%.
Novavax (NASDAQ :), another biotech developing a coronavirus vaccine that has just started phase 3 studies, was an astonishing 2,702% increase.
2. Tesla. Tesla (NASDAQ 🙂 was in a world of its own. Shares of the electric vehicle manufacturer ended the year 743% higher in both the index and the S&P 500 index.
Elon Musk's company delivered nearly 500,000 new vehicles to customers by 2020. Profitability appears stable and Tesla was awarded a membership in the S&P 500 in December. It has a market capitalization of $ 669 billion, almost twice the size of Toyota (NYSE :), Honda (NYSE :), General Motors (NYSE: ) and Ford (NYSE 🙂 together. That included gains of 24% in December and 46% in the fourth quarter alone. It appears to be an indispensable stock, even when sold at 1,398 times 12-month earnings.
3. Online retailing. These stocks boomed. Many shoppers, trying to avoid exposure to the virus, ordered online. Amazon.com (NASDAQ 🙂 has said it expects sales in the fourth quarter of $ 112 billion to $ 124 billion. Target (NYSE 🙂 and Walmart (NYSE 🙂 also reported higher online sales in the summer and fall.
Shares of Target were up 18% in November alone and ended the year at 37.7%. Walmart added 21%.
4. Online Package Senders. FedEx (NYSE 🙂 was a major beneficiary of the online boom. Shares are up nearly 72% over the year, 20th of the S&P 500 shares and the first of the shares in the. Rival United Parcel Service (NYSE 🙂 added 43.9%. Rail inventories also performed well, especially in the second and third quarters.
5. Online service companies. Etsy (NASDAQ :), the online marketplace aimed at hobbyists, was up 300%, in part because it joined the S&P 500 in September. DoorDash (NYSE :), which provides food delivery services, went public on December 8 for $ 102 and fetched $ 195 on the first day of trading. The stock has retreated, but appears to have stabilized above USD 140, up about 40%.
Airbnb (NASDAQ :), which operates an online vacation market, went public for $ 68 on December 10, indicating a market value of $ 100 billion. Shares are up to nearly $ 175, but retreated to $ 146.80 on Friday, up 116% in the first month of trading. Online brokerage Zillow (NASDAQ 🙂 was up 47%.
6. Traditional big technology. Apple (NASDAQ 🙂 rose 81% as investors appreciate the outlook with 5G phones. Its profit stability adds safety to the downside risk. The stock has served as a safe haven during the pandemic. Advanced Micro Devices (NASDAQ 🙂 basically doubled. Graphics chipmaker Nvidia (NASDAQ 🙂 was up almost 122%. Amazon finished at 76% and Microsoft (NASDAQ 🙂 was up 41%.
7. Metal stocks. These have risen as hopes have grown that the emergence of effective vaccines for COVID-19 will lead to a strong global economic recovery.
Freeport-McMoRan Copper & Gold (NYSE 🙂 was up 98% as its lead product was up more than 25% to $ 3,519 per pound.
The classic safe-haven investment rose 24% to $ 1,895.10 an ounce. was up 47%. maker Alcoa (NYSE 🙂 was down 71% in the first quarter due to the virus but made up for all those losses. While it closed the year at 7.2%. It was up 98% in the fourth quarter.
Among the losers are companies that have been directly destroyed by the corona virus. These include:
1. Energy companies, especially oil and producers . These ended the year significantly lower, although the recovery in oil prices in the second half of the year pushed up stocks.
Exxon Mobil (NYSE 🙂 was down 46% in the first quarter. It also suffered the humiliation for being removed from the Dow after 82 years. But it was up 41% in the fourth quarter.
Occidental Petroleum (NYSE 🙂 was down 58% for the year. But with oil prices soaring, stocks rose nearly 10% in December and 73% in the fourth quarter.
2. Airlines. Airline stocks have been hit by the pandemic and the fallout from the problems with Boeing's (NYSE 🙂 737 MAX because people won't travel if they don't have to.
Even as the economy recovers strongly and leisure travel picks up, business travel is likely to recover slowly, as in-person meetings can be held on Zoom or Microsoft Teams. But some airlines, most notably Alaska Airlines (NYSE 🙂 and Ryanair Holdings (NASDAQ :), have placed new orders for the 737 MAX planes as regulators have recertified the plane.
Their hope: people can't wait to travel again. Alaska stocks made modest gains in December, but skyrocketed 41% in the fourth quarter as investors raised their bets on recovery.
3. Boeing. The aerospace giant has seen its order book collapse. When the year ended, hundreds of 737 MAX planes were parked on tarmac across the western US awaiting the plane's recertification.
For the Chicago-based company, the pandemic has exacerbated a terrible situation. It's true that Boeing's stock is up 1.6% in December on top of a 46% gain in November, but they're still down 34% from the year and down 52% from their all-time high of $ 446 , 01 early 2019.
What's next?
Assuming people get COVID-19 and flu shots, life can become more like what it was pre-pandemic. That means more consumer spending, better job numbers and continued strength in the residential real estate markets in the United States and elsewhere.
The Federal Reserve does not want to raise interest rates anytime soon. Probably not before 2022.
All of this is good for the stocks.
A major risk is that the bond market could push interest rates up anyway because of massive amounts of debt that governments have had to take on to fight the virus. View the yield on 10-year Treasury bonds. It has dropped to 1% as investors start moving money from the United States to other markets.
That also pushed the dollar down, which means that import prices could rise, adding to inflationary pressures on the economy. The dollar, which tracks the dollar against a basket of currencies, declined a total of 6.4% in 2020, but 12.7% after a peak in March.
One should also watch out for pricey markets. The relative strength index for the NASDAQ is currently above 70, a warning that stocks could overheat. Not far behind that, levels for the Dow, S&P 500 and NASDAQ100 were all just below 70 on Friday.
