Tue | Oct 19, 2021

Tumultuous 2020 ended with US stocks at record high

Published:Wednesday | January 6, 2021 | 12:05 AM

Wall Street closed out a tumultuous year for stocks with more record highs on December 31, a fitting coda to the market’s stunning comeback from its historic plunge in the early weeks of the coronavirus pandemic.

The benchmark S&P 500 index finished with a gain of 16.3 per cent for the year, or a total return of about 18.4 per cent, including dividends. The Nasdaq composite, powered by high-flying big tech stocks, soared 43.6 per cent. The Dow Jones Industrial Average gained 7.2 per cent, with Apple and Microsoft leading the way.

The market’s milestone-setting finish follows a mostly upward grind for stocks in recent weeks, fuelled by cautious optimism that the United States economy and corporate profits will bounce back in 2021 now that the distribution of COVID-19 vaccines is under way.

“We came into the year expecting slow growth and it turned out to be the fastest bear market recovery in history,” said Sunitha Thomas, national portfolio advisor at Northern Trust Wealth Management.

Markets Shocked

The virus pandemic shocked markets early in the year. The S&P 500 fell 8.4 per cent in February, then plunged 12.5 per cent in March as the pandemic essentially froze the global economy. Businesses shut down in the face of the virus threat and tighter government restrictions. People shifted to working, shopping and doing pretty much everything else from home.

The dire economic situation weighed heavily on almost any company that relied on direct consumer spending or a physical presence, including airlines, restaurants, hotels and mall-based retailers.

Volatility spiked. The Dow had several day-to-day swings of about 2,000 points. And the S&P 500 rose or fell by at least 1 per cent on twice as many days in 2020 than it did, on average, since 1950.

The VIX, which measures how much volatility investors expect from the S&P 500, climbed to a record high 82.69 in March and remained above its historical average for much of the year.

The wave of selling accelerated as the economic fallout from the pandemic widened, leaving many long-term investors looking on as their gains after a blockbuster 2019 for stocks evaporated. Five months later, the market recouped all of its losses.

“It was probably very hard to imagine getting those back in such a short period of time,” said Shawn Cruz, senior market strategist at TD Ameritrade.

Wall Street’s recovery was due in large part to unprecedented actions from the US Federal Reserve and Congress to support the economy. Investors also flocked to big technology companies such as Apple and Amazon and smaller companies like Grubhub and Etsy that were poised to take advantage of the shift to working and shopping from home.

The S&P 500 jumped 12.7 per cent in April. From there, markets disconnected from the rest of the still-reeling economy and pushed higher in fits and starts as vaccine development progressed and analysts and economists looked ahead to the eventual end of the pandemic.

Even as the stock market charged ahead as the fortunes of larger companies improved, millions remained out of work and many small businesses around the country, such as bars and restaurants, remained shuttered or limped along at a fraction of their usual capacity.

Individual investors, sometimes referred to as retail investors on Wall Street, hopped onto the market rally via commission-free online trading platforms like Robinhood. Along the way, they helped power shares in companies like Tesla to new heights. The electric car maker jumped 743.4 per cent in 2020 for the biggest gain in the S&P 500.