What a year 2020 was, it had it all, the end to one of the longest Bull runs in history, A global Pandemic, the fastest ever bear market followed by one of the fastest ever recoveries and then a controversial US Presidential election to finish off. 2020 was certainly among the most volatile and challenging years of the last century.
Another point which was highlighted this year was the disconnect between financial markets and the real world economy. Financial Markets bounced back strongly in April & May while the ‘real economy’ in many countries was still suffering the fallout from Covid in the form of Unemployment, reduced output and falling demand. Proving once again that market performance is not always tied to economic performance.
The MSCI All World Index which is a good barometer for Equity performance across all Countries finished the year +14.3%.
The benchmark equity Index in the US is the S&P 500, it finished with a gain of 16.3% for the year, or a total return of about 18%, including dividends.
The Nasdaq Index which is primarily composed of Large Tech stocks had an even stronger year and finished with gains of over 43%. The VIX Index which measures how much volatility investors expect from the S&P 500, climbed to a record high in March and remained above its historical average for much of the year. However the phenomenal speed of the market recovery caught many people by surprise, thanks in large part to unprecedented actions from the Federal Reserve and Congress to support the economy. Investors then flocked to big tech stocks such as Apple and Amazon, Google etc who were poised to take advantage of this new world. We saw further gains later in the year with the outcome of the US election also very positive news from major Pharma companies around Vaccine trail results, this resulted in November was the strongest Month in US markets in over 75 years with Markets Increasing 10%
In Europe, the benchmark Estoxx 50 was down 5.1% for the year, this was not helped by the underperformance of the Financial sector in particular and also the Euro’s 9% rise against the US dollar in 2020
Britain’s blue-chip FTSE 100 index recorded its worst year since the Global Financial crisis of 2008, it was -14.8% for the year.
Closer to home the ISEQ Index of Irish shares finished the year +2.7% with Paddy Power, Smurfitt Kappa and Ryanair the biggest gainers and the Banks the biggest losers.
In commodities, the Oil Industry saw a Global drop in demand of over 8%, the biggest percentage demand drop year-over-year in history. The worst year in the history of oil trading ended with a loss of more than 20% for crude oil prices despite the best efforts of producers to reduce output due to the falling demand.
In April, WTI Oil, the US benchmark traded as low as minus -$40, the first ever negative pricing in oil’s history. This meant anyone who owned crude Oil had to pay people to get the barrels off their hands.
In precious metals, the Gold price Increased by 24% during the year, this was its strongest performance since 2010, as investors looked to safe havens and protection against inflation.
Many people might be surprised when they get their year –end report and see that their returns are positive for the year, primarily down to the intervention from Global Central Banks and also the optimism around the approval of a number of vaccines, let’s hope that 2021 brings some better news. 2020 once again taught us the importance of patience as an Investor. The biggest lesson learned by Investors was the importance of sitting tight and “sticking to the plan”…
Barry Kerr BBS QFA CFP® is the owner of Wealthwise Financial Planning, Block C, Hartley Business Park, Carrick on Shannon, www.wealthwise.ie. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.