Economic & Market Review: Fourth Quarter 2020

by The Gould Asset Management Team Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2020. The excerpt is posted here for the benefit of our blog subscribers.

Despite Pandemic, Stocks Finish 2020 on High Note, Capping Extreme Year for US and International Equities

US stocks rose over the course of a newsworthy fourth quarter in which Joe Biden became President-Elect, Covid vaccines came on line, and another round of government stimulus was approved. The quarter ended with the S&P 500 index—a measure of US large cap stock performance—finishing at an all-time high, with the index rising 12.2% on the quarter and 18.4% for
the year, despite a new surge in Covid cases.

The market followed a remarkable path in 2020, with the S&P 500 benchmark tumbling 33.9% at the onset of the pandemic before rocketing 67.9% from its March lows through year-end. It was a reminder of the benefits of “staying the course” and sticking with one’s long-term investment plan, even in the face of a once-in-a-century type disaster.

Mid and small cap US stocks, as measured by the Wilshire 4500 index, had a scintillating fourth quarter, gaining 28.3% and returning 32.0% on the year. It was a surprising come-from behind victory considering large cap stocks (particularly in the tech sector) had dominated headlines throughout most of the year.

The launch of several vaccines kindled hopes of a relatively quick return to economic normalcy. Economically sensitive sectors logged the biggest gains, while defensive sectors posted more modest progress. Financials rose the most (up 23.2%) followed by Industrials (up 15.7%) and Materials (up 14.5%).

International developed stocks outperformed US stocks on the quarter, with the MSCI EAFE index gaining 16.1%, yet still underperformed on the year—rising 8.3% compared to the 18.4% gain by the S&P 500. Investors were relieved the EU and the UK came to some basic terms on a Brexit trade deal after four years of haggling, averting the economically painful “hard Brexit” scenario.

Emerging markets stocks posted their strongest quarterly return in over a decade, rising 19.8% as measured by the MSCI Emerging Markets index. A weak US dollar amplified gains. For the year, emerging markets rose 18.7%, besting developed market stocks (both domestic and foreign) in 2020.

To continue reading, please see our entire Economic and Market Review.

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