2020 Year In Review and Looking Ahead

Post Written by: Andrew D. Rohrer

2020 year in review: It has been a memorable investment year in many respects. Market volatility, economic disruption, and political uncertainties combined in a year that many of us are happy to move past.

The domestic equity market, as measured by the S&P 500 Index, closed 2020 with a return of over 18 percent. Broad international markets, as measured by the MSCI ACWI ex U.S. Index, returned over 11 percent for the year.

The market’s returns were not evenly distributed, however. Several sectors closed the year with negative returns, such as energy and real estate. There was also a sharp difference in the returns of growth-oriented and value-oriented investments. For instance, Large Cap Growth stocks, measured by the Russell 1000 Growth Index, returned over 38 percent. Large Cap Value investments, measured by the Russell 1000 Value Index, returned just over 2 percent. This nearly 36 percent difference is unusually wide, in a historical context.

Narrow leadership was also a notable characteristic of 2020’s stock market performance in our 2020 year in review. A handful of large technology names accounted for nearly half of the total market’s annual return. In the bond market, a record low-interest rate environment and an unusually flat yield curve combined for a challenging investment environment. Outside the U.S., global capital markets were characterized by unusually accommodative monetary policy.

Government stimulus offered important support throughout 2020. In March, the Federal Reserve cut interest rates to zero and launched a $700B intervention program to protect the economy from coronavirus impacts. Later that month, Congress passed the $2T CARES Act, the largest emergency response bill in U.S. history. Investor uncertainty surrounding November’s elections was eventually resolved, and by the end of December Congress closed the year with another $900B in relief for Americans, giving investors further reason for optimism. 2020 was negatively impacted by COVID-19, but with two vaccines already authorized by the Center for Disease Control, hopes are high that 2021 could be a much better year.

Global Economies and Markets

Economic readings in the US have been mixed, we see in our 2020 year in review. Consumer spending fell sharply in the service sector through the year, including food service and accommodation, but fortunately, core inflation remained at 1.6 percent, well below the 2 percent generally targeted by the Federal Reserve.

Hiring has remained an area of concern, however. November’s jobs report included the fifth consecutive month of slowing hiring. Deferred consumer spending in 2020 opens the potential for higher consumer spending in healthcare, travel, and recreation in 2021. This hope is supported by the elevated U.S. personal savings rate of over 13 percent in Q4, well above the 5-year average rate of 7.4 percent. Americans typically spend when they feel confident though, and unfortunately, December’s consumer confidence figures included the second straight month of decline.

Economic conditions outside the U.S. appear similarly mixed. The United Kingdom and the European Union solidified a new trade deal at year’s end, which gives the UK freedom to strike trade deals on its own outside the EU. This finally concluded the uncertainty surrounding BREXIT, though mainland Europe is still in a state of severe restriction due to the coronavirus. In December, the European Central Bank tried to ease some of the economic pain by expanding its stimulus by another 500B Euros, bringing its total asset purchases to over 1.8T Euros. Many bonds in the Netherlands, Germany, Finland, and Denmark still have negative yields, meaning investors receive less money at maturity than originally invested. At year’s end there were some isolated signs of optimism: manufacturing in the Eurozone closed 2020 with the highest growth rate in 2.5 years.

Looking Ahead – What Does This Mean For You?

As we continue into 2021 after our 2020 year in review, we remain cautiously optimistic. The severity of March’s contraction was offset by aggressive monetary and fiscal policy responses.  We remain hopeful that a lessening of political uncertainty, the unleashing of pent-up consumer demand, and virus vaccines could all stimulate a positive market environment.

This is the time when having an advisor like Domani Wealth, who is focused on your financial goals can really make a difference in your long-term financial plan.  We view the current environment as an opportunity to revisit your strategic portfolio allocation, take another look at your cash needs, make portfolio shifts to minimize tax liability, and review your long-term goals.  If you have any questions or would like to meet and review your financial situation, please call our office for a virtual appointment.

Domani Wealth wishes you the best for the new year.

 

 

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