Annual Market Review 2020
Annual Market Review 2020
Over the past 12 months, we have endured a global pandemic resulting in numerous deaths and
hospitalizations, mass layoffs, a sinking economy, and a contentious presidential election. Our lives and
lifestyles changed, where working and learning from home became the "new normal," and in-person
communication was replaced by virtual meetings. In short, 2020 was a very memorable year that tested our
resolve, patience, and courage.
The year began with news of a SARS-like virus spreading in China. Little did we know the impact this
contagion would impart on our health, politics, and economy. Late in January, the very first known case of
COVID-19 in the United States involved a Washington state victim who had traveled from the city of
Wuhan, China. By February, the growing number of reported cases of the virus prompted travel restrictions,
stay-at-home orders, and shutting down of businesses both domestically and around the world. Aside from
concern caused by the virus, we were consumed by the impeachment in February of President Trump, who
was eventually acquitted by the Senate.
In March, the World Health Organization declared a global pandemic as the spread of the virus reached
more than 100 countries, with more than 100,000 reported cases. By mid-March, President Trump declared
a state of national emergency. World economies and stock markets were rocked by the spread of the
COVID-19 virus. leading to major market sell-offs, plunging stocks well below their 2019 values. The U.S.
first-quarter gross domestic product decelerated at a rate of -5%, only to be outdone by a second-quarter
deceleration of -31.4%. Fear became the motivating factor in our lives — fear of contracting the virus, fear of
losing a loved one to the virus, fear of job loss, fear of economic failure, and fear of losing our money.
In response to the economic turmoil caused by the pandemic, several pieces of legislation were passed,
including the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First
Coronavirus Response Act, and the massive COVID-19 rescue package, the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), which included the Paycheck Protection Program and distribution of
stimulus checks to qualifying individuals. In May, focus shifted to the death of George Floyd, which sparked
protests and confrontations across the country.
The summer months saw a slight lull in the number of reported virus cases. Economies began to marginally
recover, some businesses began to reopen, and travel restrictions were relaxed. However, as the
availability of testing for the virus increased, so did the number of reported cases. Following the Democratic
and Republican national conventions, the campaign for the presidential election captured the focus of most
Americans for the rest of the year, although COVID-19 seemed to cast a shadow over almost every aspect
of our lives.
The November presidential election resulted in the defeat of President Donald Trump by former Vice
President Joe Biden, with the post-election period dominated by attempts to overturn the results through
federal courts and state legislatures. Nevertheless, some positive news came at the end of the year with
the development and initial dissemination of COVID-19 vaccines and additional legislation that provided
$900 billion in pandemic-related stimulus.
The new year brings with it a sense of hope: hope that the virus will be controlled; hope for a return to some
form of normalcy in our daily lives; hope for economic prosperity and job security; and hope for peace, both
here and around the world — and a good riddance to 2020.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Snapshot 2020 (The Markets)
- Equities: As with almost every aspect of 2020, the pandemic impacted the stock market throughout the
year. Investors began hearing of the possible spread of the virus in January, creating uncertainty and
trepidation. By the end of February, investors sold more equities than they purchased, driving values
down. By the end of March, the spread of COVID-19 throughout much of the world and within the United
States prompted a major market sell-off. The first quarter saw each of the benchmark indexes fall far
below its 2019 closing value. Fiscal stimulus measures in April, coupled with value buying, drove stocks
to their best month since 1987. The possibility of a COVID-19 vaccine, a brief slowdown in the number
of reported virus cases, and the onset of the summer season provided enough encouragement for
investors to stay in the market. Throughout the rest of the year, despite a resurgence in the number of
reported COVID-19 cases and deaths, an historic number of unemployment claims, delays in the
long-awaited vaccine, and additional stimulus, investors saw hope that the economy would turn the
corner and that the virus would be contained. Those factors, coupled with the low interest-rate
environment, made stocks a viable option.
- On the last day of the year, the Dow and the S&P 500 ended at all-time highs. In fact, the fourth quarter
was robust for stocks, with each of the major indexes posting double-digit gains, headed by the small
caps of the Russell 2000, which surged to a gain of 31.3% over the prior quarter. Despite the turmoil and
early-year losses, all of the benchmark indexes listed here closed 2020 well ahead of their 2019 closing
marks. The tech stocks of the Nasdaq, which gained more than 43.0%, led the way, followed by the
Russell 2000, the S&P 500, the Dow, and the Global Dow.
- Bonds: U.S. Treasury yields generally trended lower in 2020, never reaching their 2019 year-end high
of 1.91%. Muted inflation and low interest rates drove bond prices up and yields down. Ten-year
Treasuries hit an all-time low of 0.3% in March as investors ran from stocks in favor of bonds. The
impact of COVID-19 kept investors on edge as the economy drifted toward a recession. As parts of the
economy began to slowly recover, investors again moved toward stocks and away from bonds, pushing
yields higher. The yield on 10-year Treasuries ultimately closed 2020 at 91.0%, down 100 basis points
from where it began the year.
- Oil: Oil prices began 2020 at $63.05 per barrel, only to slump throughout the rest of the year. Oil
demand declined drastically following COVID-19-related lockdowns and travel restrictions. An all-out oil
price war in March and part of April drove prices below $20.00 per barrel. An agreement in mid-April to
cut petroleum output helped stabilize prices. For the year, crude oil prices averaged about $39.00 per
barrel, ultimately closing at $48.44 per barrel on December 31.
- FOMC/interest rates: The Federal Open Market Committee lowered interest rates dramatically in 2020
while instituting new and drastic measures in response to the economic turmoil caused by COVID-19.
The year began with the target range for the federal funds rate at 1.50%-1.75%. However, due to the
negative effects of COVID-19, the Federal Reserve cut the federal funds rate by 150 basis points to a
range of 0.00%-0.25% in March. In addition, the Fed instituted a policy of unlimited bond buying,
including the purchase of corporate bonds; $300 billion in new financing; and the establishment of two
new facilities, the Term Asset-Backed Securities Loan Facility to enable the issuance of asset-backed
securities, and a Main Street Business Lending Program to support lending to eligible small and
medium-sized businesses. The target range for the federal funds rate stayed at 0.00%-0.25% through
December and will likely remain there for most of 2021. The Fed also committed to continue increasing
its holdings of Treasuries and mortgage-backed securities.
- Currencies: The United States Dollar Index (DX-Y.NYB), which measures the U.S. dollar against the
currencies of several other countries, hit a high of $102.99 in March. It closed at $89.91 on December
31, having fallen nearly 9.0% since the beginning of the year. The huge expansion of the national debt
coupled with the continued impact of COVID-19 could keep the dollar from gaining upward momentum
for quite some time.
- Gold: Gold prices began the year at $1,524.50 and closed 2020 at $1,901.70, an increase of nearly
25.0%. During the year, gold fell to $1,450.90 in March, only to surge to $2,089.20 in mid-August.
Investors turned to gold amid the growing uncertainty of COVID-19. A depreciating dollar and receding
bond yields added to the appeal of gold for investors.
Last Month's Economic News
- Employment: Employment slowed in November with the addition of 245,000 new jobs, well below the
totals for October (638,000) and September (661,000). The unemployment rate inched down 0.2
percentage point to 6.7% in November as the number of unemployed persons dipped from 11.1 million
in October to 10.7 million in November. Despite the reduction in the number of unemployed persons,
that figure is still 4.9 million higher than in February. Among the unemployed, the number of persons on
temporary layoff decreased by 441,000 in November to 2.8 million. This measure is down considerably
from the high of 18.1 million in April but is 2.0 million higher than its February level. In November, the
number of persons not in the labor force who currently want a job increased by 448,000 to 7.1 million;
this measure is 2.2 million higher than in February. In November, 21.8% of employed persons
teleworked because of COVID-19, up from 21.2% in October. The labor force participation rate edged
down to 61.5% in November; this is 1.9 percentage points below its February level. The
employment-population ratio, at 57.3%, changed little over the month but is 3.8 percentage points lower
than in February. Average hourly earnings increased by $0.09 to $29.58 in November and are up 4.4%
from a year ago. The average work week remained unchanged at 34.8 hours in November.
- Claims for unemployment insurance continued to drop in December. According to the latest weekly
totals, as of December 19 there were 5,219,000 workers receiving unemployment insurance, down from
the November 14 total of 6,071,000. The insured unemployment rate fell 0.5 percentage point to 3.6%.
During the week ended December 12, Extended Benefits were available in 24 states; 51 states reported
8,459,647 continued weekly claims for Pandemic Unemployment Assistance benefits, and 51 states
reported 4,772,853 continued claims for Pandemic Emergency Unemployment Compensation benefits.
- FOMC/interest rates: The Federal Open Market Committee met in December. The FOMC decided to
maintain the target range for the federal funds rate at 0.00%-0.25% and expects to maintain this range
for the forseeable future until employment and inflation meet standards set by the Committee. In a
statement released following its meeting, the Committee stressed that the COVID-19 pandemic is
causing tremendous human and economic hardship across the United States and around the world.
While economic activity and employment have continued to recover, those measures remain well below
their levels at the beginning of the year. The Committee noted that weaker demand and earlier declines
in oil prices have been holding down consumer price inflation. The FOMC also submitted its projections
of the most likely outcomes for gross domestic product, the unemployment rate, and inflation for each
year from 2020 to 2023 and over the longer-run. The projected longer run change in GDP is 1.6%-2.2%.
The projected unemployment rate is 3.5%-4.5% over the longer range, and inflation is projected to run at
2.0%. The longer-range projection of the federal funds rate is 2.0%-3.0%.
- GDP/budget: In contrast to the second-quarter gross domestic product, which fell 31.4%, the
third-quarter GDP shows the economy advanced at an annual rate of 33.4%, as the country continued to
rebound from the economic effects of the COVID-19 virus. Consumer spending, as measured by
personal consumption expenditures, increased 41.0% in the third quarter, in contrast to a 33.2% decline
in the second quarter. The increase in PCE accounted for 25.44% of the change in GDP. Nonresidential
(business) investment vaulted 22.9% (-27.2% in the second quarter); residential fixed investment soared
63.0% after falling 35.6% in the prior quarter. Exports advanced 59.6% (-64.4% in the second quarter),
and imports increased 93.1% (-54.1% in the second quarter). Federal nondefense government
expenditures decreased 18.3% in the third quarter as federal stimulus payments and aid lessened.
- November saw the federal budget deficit come in at a smaller-than-expected $145.3 billion, down
roughly 30% from November 2019. However, the deficit for the first two months of fiscal year 2021, at
$429.3 billion, is 25% higher than the first two months of the previous fiscal year. Through November,
government outlays rose 9.0%, while receipts fell 3.0%. The rise in government expenditures for fiscal
year 2021 is attributable to a 67% increase in outlays for income security, an 18% jump in outlays for
health, and a 214% climb in community and regional development payments. Medicare outlays fell
about 15% compared to the same period last year.
- Inflation/consumer spending: The COVID-19 pandemic clearly impacted personal income and
spending in November. According to the latest Personal Income and Outlays report, personal income
and disposable personal income decreased 1.1% and 1.2%, respectively, after decreasing 0.6% and
0.7% in October. Consumer spending fell 0.4% in November after increasing 0.3% the previous month.
Inflation remained muted as consumer prices were unchanged in November and October. Consumer
prices have increased by a mere 1.1% over the last 12 months ended in November.
- The Consumer Price Index climbed 0.2% in November after being unchanged in October. Over the 12
months ended in November, the CPI rose 1.2%. The prices for lodging away from home, household
furnishings and operations, recreation, apparel, airline fares, and motor vehicle insurance increased in
November. Prices for used cars and trucks, medical care, and new vehicles declined over the month.
Increases in shelter and energy were major factors in the CPI increase. Core prices (less food and
energy) increased 0.2% in November and are up 1.6% over the 12 months ended in November.
- Prices that producers receive for goods and services rose 0.1% in November following a 0.3% October
jump. Producer prices increased 0.8% for the 12 months ended in November, the largest advance since
moving up 1.1% for the 12 months ended in February. Producer prices less foods, energy, and trade
services rose for the seventh consecutive month after advancing 0.1% in November. For the 12 months
ended in November, prices less foods, energy, and trade services moved up 0.9%, the largest rise since
a 1.0% increase for the 12 months ended in March.
- Housing: Sales of existing homes fell in November after advancing in each of the previous five months.
Existing home sales dropped 2.5% in November but are up 25.8% from a year ago. The median
existing-home price was $310,800 in November ($313,000 in October). Unsold inventory of existing
homes represents a 2.3-month supply at the current sales pace, a record low. Sales of existing
single-family homes fell 2.4% in November following a 4.1% jump in October. Over the last 12 months,
sales of existing single-family homes are up 25.6%. The median existing single-family home price was
$315,500 in November, down from $317,700 in October.
- New single-family home sales continued to slide, dropping 11.0% in November after falling 0.3% in
October. The median sales price of new single-family houses sold in November was $335,300
($330,600 in October). The November average sales price was $390,100 ($386,200 in October). The
inventory of new single-family homes for sale in November represents a supply of 4.1 months at the
current sales pace, up from the October estimate of 3.6 months.
- Manufacturing: Industrial production has risen to within 5.0% of its pre-pandemic (February) level after
increasing 0.4% in November. By comparison, industrial production in April was 16.5% below its
February level. Manufacturing output rose 0.8% in November, marking the seventh consecutive month
of gains. An increase of 5.3% for motor vehicles and parts contributed significantly to the gain in factory
production; excluding motor vehicles and parts, manufacturing output moved up 0.4%. In November,
utilities declined 4.2% as unusually warm temperatures reduced demand. Mining production increased
2.3% in November after falling 0.7% in October. In November, total industrial production was 5.5% lower
than a year earlier.
- For the seventh consecutive month, new orders for durable goods increased in November, climbing
0.9% following a 1.8% jump in October. Despite the trend of monthly increases, new orders for
manufactured durable goods were 8.0% lower than a year ago. Excluding transportation, new orders
increased 0.4% in November (+1.3% in October). Excluding defense, new orders increased 0.7% in
November (+0.2% in October). Transportation equipment, up in six of the last seven months, led the
increase, climbing 1.9% in November (+1.5% in October).
- Imports and exports: Both import and export prices inched higher in November. Import prices rose
0.1% after falling 0.1% in the prior month, an increase largely driven by higher fuel prices. Import prices
excluding fuel dropped 0.3% in November. Despite the recent increases, prices for imports decreased
1.0% from November 2019 to November 2020. Export prices advanced 0.2% in November after
declining 0.1% in October. Overall, export prices dipped 1.3% over the past year. Agricultural export
prices rose 2.2% in November, while nonagricultural prices for items such as consumer goods,
automobiles, and industrial supplies and materials were unchanged, but are down 1.6% during the 12
months ended in November.
- The international trade in goods deficit was $84.8 billion in November, up $4.4 billion, or 5.25%, from
October. Exports of goods were $127.2 billion in November, $1.1 billion, or 0.8%, more than in October.
Imports of goods were $212.0 billion in November, $5.5 billion, or 2.6%, more than in October. Driving
exports higher in November were foods, feeds, and beverages (4.3%), and industrial supplies (1.5%).
After increasing 5.9% in October, exports of consumer goods inched up 0.8% in November. Imports of
industrial supplies (2.9%), consumer goods (6.7%), and other goods (4.0%) pushed total imports higher
in November. Imports of automotive vehicles fell 3.2% in November after rising 3.2% in October.
- The latest information on international trade in goods and services, out December 4, is for October and
shows that the goods and services trade deficit was $63.1 billion, an increase of nearly $1.0 billion, or
1.7%, over the September deficit. October exports were $182.0 billion, or 2.2%, more than September
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021
exports. October imports were $245.1 billion, or 2.1%, more than September imports. Year to date, the
goods and services deficit increased $46.6 billion, or 9.5%, from the same period in 2019. Exports
decreased $345.9 billion, or 16.4%. Imports fell $299.4 billion, or 11.5%.
- International markets: A mutant strain of COVID spread rapidly though parts of Europe late in the year,
sending stocks reeling as several affected countries tightened restrictions. This latest development will
likely stall what had been a recovering European economy. Industrial production and retail sales had
been approaching pre-pandemic levels in several European nations. The United Kingdom and the
European Union reached a trade agreement as Brexit nears its final stages. In China, the third-quarter
GDP advanced 2.7% and is 4.9% higher year-over-year.
- Consumer confidence: The Conference Board Consumer Confidence Index® declined in December
for the third consecutive month. The index stands at 88.6, down from 92.9 in November. The Present
Situation Index, based on consumers' assessment of current business and labor market conditions,
decreased sharply from 105.9 to 90.3. However, the Expectations Index — based on consumers'
short-term outlook for income, business, and labor market conditions — increased from 84.3 in November
to 87.5 in December.
Eye on the Year Ahead
The year 2021 should bring continued economic recovery. As the United States and the world inch slowly
toward normalcy following the battle against the COVID-19 pandemic, stock markets, employment, and
production should also advance.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City
Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance:
Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK);
www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based
on reports from multiple commonly available international news sources (i.e. wire services) and are
independently verified when necessary with secondary sources such as government agencies, corporate
press releases, or trade organizations. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion
expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be
relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk,
including the potential loss of principal, and there can be no guarantee that any investing strategy will be
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded
blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common
stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index
is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell
2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow
is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar
Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies.
Market indices listed are unmanaged and are not available for direct investment.
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