4th Quarter Market Commentary
by Steve Conard, CFP®
On the strength of a massive November rally, the US stock market’s 4th quarter sprint to the finish line capped a truly historic ride in 2020. Continuing the correction that began in September, the S&P 500 index declined 2.77% in October to kick off the 4th quarter. Wall Street’s mood shifted suddenly with the arrival of November, and turned downright giddy with news of the first COVID-19 vaccine approval on November 9th. By month’s end, the Dow Jones Industrial Average (DJIA) gain of 11.84% was the market’s best single-month return since 1928. After another solid showing in December, the S&P 500 index (up 16.26%) and DJIA (up 7.25%) closed out 2020 at all-time highs, while the NASDAQ Composite index (up 43.64%) finished the year just a fraction off its record high set on December 28th.
US bond markets also posted gains across the spectrum, albeit with much support from the Fed. International equity markets once again lagged the US, but also finished higher for 2020 in both developed and emerging markets.
Amid the longest-running bull market ever, investors had gotten used to serial new record stock market highs long before a global pandemic appeared on radar. These latest high-water marks may be the least remarkable among many noteworthy market movements seen in 2020, including:
- The steepest and quickest bear market ever – the S&P 500 shed 34% of its value in 33 calendar days (23 trading sessions)*;
- The three worst single-day point drops in DJIA history occurring within one week (March 9-16)*;
- 14 of the 17 largest daily declines AND 8 of the 9 biggest daily gains in DJIA history (124 years)*;
- The fastest recovery ever from bear market lows to new record highs (5 months for the S&P 500, even faster for the NASDAQ composite index)*;
- The highest-ever reading on the VIX index, a measure of market volatility*.
The apparent disconnect between the stock market’s strength and the economy’s weakness can be explained by the uneven impacts of the pandemic, benefiting technology and related sectors’ profits (and stock prices) while others (i.e. travel) are in survival mode. Because the largest companies are ‘Big Tech’ names, the huge rise in their shares have accounted for most of the gains in the broad market indices and the outperformance of the tech-heavy NASDAQ versus the S&P 500.
Wall Street traders have shown signs recently of rotating away from the high-flying technology sector into beaten-down sectors that are poised to recover when vaccine coverage enables the reopening of the global economy. A continuation of these trends will remain dependent on COVID data and ongoing accommodative monetary and fiscal spending policies.
Have questions about any of this? Reach out to one of our Des Moines Financial Advisors today!
*Data sourced from JPMorgan Asset Management. Past performance is no assurance of future results. Compass Financial Services (“Compass”) is a registered investment adviser with its principal place of business in the State of Iowa. Opinions expressed are those of Compass and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security. The data was obtained from third parties deemed by the adviser to be reliable. Nonetheless, the adviser has not verified the results and cannot be assured of their accuracy.