2020’s most notable market events, Part I
We look back at the moments that defined markets in this unforgettable year.
Our Top Market Takeaways for December 11, 2020.
Looking on the bright side
Heading into Friday, the S&P 500 was down -0.7% on the week as the United States saw a new record in COVID-19 daily deaths (3,100) and an unexpected rise in the number of Americans filing initial unemployment claims (853,000). Meanwhile, Congress remained in a stalemate over the details of the next fiscal relief package (despite what looked like promising progress earlier in the week).
Across the pond, the European Union (EU) and the United Kingdom still can’t agree on the terms of their trade relationship, reigniting worries that a Brexit deal may not be reached at all before the divorce is finalized at year-end.
But, hey, it wasn’t all bad!
- The Pfizer/BioNTech COVID-19 vaccine became a reality as the United Kingdom and Bahrain distributed their first doses to non-trial participants, Canada gave it the green light, and the United States entered its final stages for approval.
- The European Central Bank announced an expansion of its bond buying program and other easing measures, signaling continued policy support for the Eurozone.
- Following a few notable initial public offerings this week (from companies meeting your stay-at-home pad thai cravings and get-out-of-town house rental needs), the total amount of funds raised on U.S. exchanges from IPOs this year broke above $160 billion—an all-time record.
- We also saw U.S. small cap stocks overtake the year-to-date performance of the S&P 500 for the first time in 2020, reflecting a broadening out of the market recovery. Not that there’s a loser in this race, though—both have total returns of over +15% so far this year (Russell 2000 +16.7%, S&P 500 +15.5%).
We’ll inevitably see weeks where markets slide into a funk and economic data stumbles, but to us, the big picture of the future looks bright. Our mantra for the year ahead is that the global economy will heal; embrace the optimism.
To be sure, those who had the discipline to stay (or get) invested by looking beyond this year’s unprecedented volatility and toward the recovery have been rewarded.
That’s not to say it’s been an easy task. 2020 will go down in history as one of the wildest years investors have ever experienced. So this week and next, we’re memorializing the moments that we think defined the investment landscape this year.
2020's most notable market events, Part 1
The number of times we’ve used the word “unprecedented” to talk about markets this year is, well, unprecedented…so much so that we found it difficult to pare down our list of “firsts” and superlatives into one note. Today, we’ll take a look at some of the exceptional market events that defined the first half of the year.
When we entered the new decade, we were in the midst of the longest U.S. economic expansion ever. In fact, the 2010s were the first decade without a recession since at least the Civil War. Heading into 2020, we thought the runway was relatively clear (save for a few wildcards, such as geopolitics and the 2020 U.S. election) for the economic expansion to continue well into its 11th year. But the COVID-19 crisis brought an exogenous (outside) shock to the economic system. It not only became the recession that no one predicted, but also the recession that was no one’s fault.
We saw the fastest -10% correction on record ever. It took only six days for the S&P 500 to fall from its peak into correction territory. And, that same week, the bellwether 10-year U.S. Treasury bond was yielding less than 1.20% for the first time ever, signaling a flight to quality.
The S&P 500 averaged a ~5% move every day (in either direction)—more than a full percentage point more volatile than any other month on record. Another measure: The VIX, which measures implied volatility of the S&P 500, skyrocketed above 80 to its highest level on record.
A host of indices also saw their worst days in decades—the S&P 500 (-12.0% on March 16) sold off the most since 1987’s Black Monday; Canada’s S&P/TSX (-12.3% on March 12) had its worst day since 1940, the U.K.’s FTSE 100 (-10.9% on March 12) since 1987, and Germany’s DAX (-12.2% on March 12) since 1989. Both the Stoxx Europe 600 (-11.5% on March 12) and Italy’s FTSE MIB (-16.9% on March 12) had their worst days on record. The U.S. 10-year Treasury yield also continued its decline, dropping below 1% for the first time ever (and at one point to as low as 54 basis points).
When the tide turned, it happened fast. The S&P 500 had its best month since 1987, gaining +12.5%, as investors embraced the tremendous support offered by the Federal Reserve and the U.S. government’s CARES Act. Some emerging market indices (Taiwan’s TAIEX, the FTSE South Africa and India’s SENSEX) even outperformed the S&P 500. Investment grade bonds had their best month since 2008, racking up +5.7% as the Federal Reserve dusted off several crisis-era facilities (and created some new ones) designed to get credit flowing to the economy.
Another one worth noting: West Texas Intermediate (WTI) crude oil prices went negative for the first time ever. That means you were actually paying the person with the oil to not give you the oil. The culprit? COVID-19 lockdowns. Demand for oil plummeted as the economic wheels stopped turning, and supply inventories were stocked full—there was so much oil, there wasn’t any room to store it.
Angela Merkel and Emmanuel Macron proposed a first draft of the EU Recovery Fund, marking a watershed moment for the bloc. The move represented the first attempt at a fiscal redistribution mechanism between members. The Eurozone has always been a monetary union, but it has never been able to enact fiscal policy to help all of its member states. This agreement changed that. Once enacted, the EU will be able to issue debt and use the proceeds to support weaker links, mitigating the risk of a country having to leave the currency union (which has long been a fear of global investors).
The game started to get interesting for the U.S. election. Now-President-elect Joe Biden began to outpace President Donald Trump in earnest, at least as far as betting markets were concerned. At the start of the year, President Trump looked set to win another term thanks to a then-thriving economy, low unemployment and a Republican-dominated Senate. However, amid the unfolding recession and the most serious wave of civil unrest in half a century, Biden surged ahead of Trump, with ~60% odds of winning the presidency. At the same time, companies tied to Democratic agenda items—such as those levered to a minimum wage hike, alternative energy, infrastructure spending, U.S.-China trade de-escalation, and healthcare—continued to climb.
To be continued…find out what we think were the most important market moments in the second half of 2020 in next Friday’s Top Market Takeaways.
All market and economic data as of December 2020 and sourced from Bloomberg and FactSet unless otherwise stated.
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