Looking for longer-term trends that might shape the next few years
Let’s be honest for a second: the DJIA, the S&P 500 and NASDAQ all delivered one of the most surprising years in recent history. And while many are happy to see 2020 in the rear-view mirror, the 2020 performance for the major U.S. indices was nothing short of impressive, especially given the headwinds of COVID-19 and the drama surrounding the presidential election.
Who could have predicted that:
- The DJIA would rise 10.2% in Q4 and end the year up 7.3%; or
- The S&P 500 would rise 11.7% in Q4 and end the year up 16.3%; or
- NASDAQ would rise 15.7% in Q4 and end the year up 43.6%?
As we enter 2021, there will be no shortage of talking-heads trying to scare investors that we might be in a stock market bubble. And they might be right.
But the flip-side is that there are just as many talking-heads suggesting that stock markets still have plenty of room to grow, and that this time it really is different. The reality is that it’s a topic that divides some of the brightest minds in finance.
So, rather than jump down that rabbit hole, let’s instead try to decipher what the stock markets are telling us. Are trends developing that might shape the next few years? Has COVID-19 forever shifted the landscape of some industries at the expense of others? Maybe 2020’s 5 best- and worst-performing stocks from the DJIA and the S&P 500 can inform.
Best/Worst 2020 Stocks in the DJIA
Within the 30-stock DJIA, 2020 saw almost 2/3 record positive performance and the gap between the best and the worst performer was wide.
2020 Total Return
Merck & Co. Inc.
Walgreens Boots Alliance
The Boeing Company
Best/Worst 2020 Stocks in the S&P 500
As the chart below demonstrates, the gap between the best and the worst performer in the S&P 500 was obscenely wide. Some might argue that the gap defies logic altogether.
2020 Total Return
Marathon Oil Corporation
Occidental Petroleum Corp.
We Know What Happened
The COVID-19 pandemic literally shocked markets early in the year, essentially freezing our global economy as businesses and schools shut down. Those who could, shifted to working and shopping from home. And businesses that relied on a consumer’s physical presence suffered – think airlines, restaurants and hotels. But as vaccines are being distributed, ask yourself this: are these short-term shifts or longer-term ones? And if you think the shifts are longer-term, what should you do about it?
What Should You Do Now?
The answer to that question is, of course, very personal. And depending on your perspective, your course of action will be personal too. But as your financial advisor, I would encourage you to think beyond just investing.
Think about things like:
- Is your house equipped for you to work from home long-term?
- Do you have enough cash-reserves in case of an emergency?
- Are your estate planning documents (will, power of attorney, health-care directive, etc.) updated?
Do you have adequate insurance that covers your risks?
Finally, if you are thinking of altering your asset allocations due to what you think might be longer-term trends, let’s discuss.
Adapted with permission from FMeX.