The 2020 Rollercoaster

Sam Swift, CFA, CFP®, AIF®

Jan 11, 2021

What a year that was! I don’t think I’ll get any objections in saying that was the most—I’ll be charitable here—unique of my 37 years on this Earth. I was even able to add several job titles to my resume: amateur epidemiologist, kindergarten teacher, and amateur political scientist. I can name more counties in Pennsylvania and Georgia than my home state of Arizona at this point! It was odd that life became so crazy on one hand, and yet so mundane on the other. But you all lived it, too, so I don’t need to dwell on that. We’re here to recap the investment rollercoaster of 2020.

It was a pretty unique market year, but only if you followed every movement. In the end, 2020 annual returns for the S&P 500 won’t stand out in the historical record. Last year ranks as the 41st best year of the last 95—in other words, just a bit above average. Of course, the S&P 500 is just a slice of the market opportunity we invest in. To understand the rollercoaster our portfolios were on last year, we need to break down the various asset class components into three different timeframes:

  1. The beginning of the pandemic and initial panic (January-March)
  2. The initial recovery (April-October)
  3. The post-vaccine announcement recovery (November-December)

The Beginning of the Pandemic and Initial Panic

Asset ClassReturnAsset ClassReturn
Short-term Fixed Income0.94%Global Real Estate-29.02%
Intermediate-term Fixed Income3.15%Foreign Large Stocks-22.83%
US Large Stocks-20.22%Foreign Large Value Stocks-27.66%
US Large Value Stocks-26.73%Foreign Small Stocks-27.52%
US Small Stocks-30.61%Foreign Small Value Stocks-30.61%
US Small Value Stocks-35.66%Emerging Markets Stocks-23.60%
Asset Class Returns from January-March 2020

We can look at this with sober analysis now, but March was a nightmare with ten percent daily swings in the market in both directions. People were compelled to ask the question, “is it actually different this time?” Nobody knew anything. Every asset class took the initial shock and panic of the first lockdowns hard with one main exception: fixed income. It’s a great reminder that we primarily hold fixed income in portfolios for this exact reason. It’s the money that will stay safe even in the face of a worldwide pandemic.

Outside of fixed income, though, there was nowhere to hide. U.S. Large Stocks didn’t lose as much as some of the other asset classes as they were buoyed by the very largest tech stocks who were poised to do well in an environment where people were encouraged to stay home. At the end of March, of course, we were still in the thick of things and the news was not improving. COVID cases and deaths were rising worldwide and there didn’t seem to be an end in sight. So, what happened to markets in the ensuing months?

The Initial Recovery

Asset ClassReturnAsset ClassReturn
Short-term Fixed Income0.08%Global Real Estate10.28%
Intermediate-term Fixed Income3.07%Foreign Large Stocks15.58%
US Large Stocks30.15%Foreign Large Value Stocks7.81%
US Large Value Stocks19.10%Foreign Small Stocks27.57%
US Small Stocks34.36%Foreign Small Value Stocks18.83%
US Small Value Stocks26.31%Emerging Markets Stocks32.03%
Asset Class Returns from April-October 2020

A strong market recovery began to take hold despite the headlines which is another good lesson. Markets are forward-looking and market movements do not always align with the current news cycle.

To be sure, some of the initial recovery was likely markets getting past the panic phase and taking a more sober look at the future. Governments across the world also passed various aid packages that helped disrupted industries and workers stay afloat while their businesses were closed. Interestingly, though all asset classes were positive, some obviously recovered much faster than others. Value stocks, notably, did not bounce back as quickly. Value stocks, by definition, are going to be riskier—there is a reason investors have collectively placed a higher discount rate on them. Without a clear end to the pandemic, value stocks were held back a bit in their recovery as investors stayed cautious. A major announcement, however, was about to come.

Post-Vaccine Announcement

Asset ClassReturnAsset ClassReturn
Short-term Fixed Income0.03%Global Real Estate16.15%
Intermediate-term Fixed Income1.12%Foreign Large Stocks20.87%
US Large Stocks16.50%Foreign Large Value Stocks24.26%
US Large Value Stocks17.80%Foreign Small Stocks21.50%
US Small Stocks28.68%Foreign Small Value Stocks23.86%
US Small Value Stocks28.76%Emerging Markets Stocks17.28%
Asset Class Returns from November-December 2020

What a win for medical science! For many reasons the vaccine announcement from Pfizer (and later Moderna and AstraZeneca) was a breath of fresh air in 2020. For all the missed timelines and disappointments regarding testing throughout the year, the vaccine was the one piece that came in ahead of even the most optimistic predictions. And with the vaccine came another boost to the last couple months of market returns with value stocks leading the way. (I’ll also point out that these returns were in spite of a US Presidential election that is still being disputed. Markets don’t care about elections nearly as much as we’re led to believe!) Note: Just after I wrote this, the U.S. Capitol was evacuated as rioters broke in. “Disputed” is an understatement.

Looking Forward to 2021

The reality is that if you just looked at these market returns with no context of the outside world, it would be hard to distinguish them from other periods in our history. The one main difference was the speed at which it all happened. In fact, if I stretched these time periods out to a scale of years instead of months, we’ve seen this happen many times. Stock markets around the world essentially went through a cycle of recession and recovery that typically takes 2-4 years in a matter of months and that was a bit unique.

From an economic standpoint, there is good reason for optimism in 2021. The pandemic has certainly further increased the wealth divide across the world—some people have had their lives upended by COVID while many others have ultimately just been inconvenienced. As the vaccine is rolled out, there is a lot of pent-up demand that will likely be eager to spend as things return to “normal”, whatever that may be post-pandemic. Jobs will return and the unemployment rate will drop in that scenario as well.

Of course, there are always risks too. A delayed rollout of the vaccine, new mutations of the virus, and people being hit so hard during COVID that they will struggle to recover are all possibilities.

Like any year, 2021 has uncertainty ahead, but we’re long-term stock investors (fixed income covers our shorter-term needs). Uncertainty is what leads to long-term stock returns. If we keep in mind the lessons we relearned last year and keep our investments allocated in the best way to meet our goals, we’ll be just fine no matter what the year throws at us.

Happy New Year!

Short-term Fixed Income = ICE BofA US 6-month Treasury Bill Index; Intermediate-term Fixed Income = Bloomberg Barclays U.S. Aggregated Bond Index; US Large Stock = Russell 1000; US Large Value = Russell 1000 Value; US Small Stocks = Russell 2000; US Small Value = Russell 2000 Value; Global Real Estate = S&P Global REIT Index; Foreign Large Stocks = MSCI EAFE; Foreign Large Value = MSCI EAFE Value Index; Foreign Small Stocks = MSCI EAFE Small Cap Index; Foreign Small Value = MSCI EAFE Small Value Index; Emerging Markets = MSCI Emerging Markets Index


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