2020 – Year In Review
No year-end review for 2020 would be complete without mentioning the ongoing COVID-19 pandemic and its impact on everything that exists. There are nearly 20 million reported cases and over 340,000 deaths from the virus in the US. Over 3,000 die.
No words of mine will do justice to anyone reading this for the loss of life, health, wealth or anything in between. Certainly no words about finance, the markets or returns. But 2020 is in the rearview mirror (thankfully) and with the vaccine rollouts (albeit too slowly), we can look to life in 2021 with that most resilient of feelings – hope.
Final word: I hope Covid gets Covid.
Stock Roller Coaster
From the start of 2020 through February 19th, the S&P 500 was up 4.81% – not bad. Starting the next day and through the market bottom on March 23rd, the S&P 500 fell 33.93% in 23 trading days, the fastest drop in history. And that’s saying something after the crash of ’87, the dot-com bubble in the late 90’s and the financial crisis in ’08. What was the fastest drop in history was soon followed by the best 50-day rally in history – from March 23rd through June 3rd, the S&P 500 rallied over 39%. If you didn’t get whiplash or nausea from this, your portfolio certainly did.
Even after that rally, the S&P 500 was still down 3.34% for 2020 but after what we all just went through, who could really complain? The gains kept coming through the summer and fall but in a market cap-weighted index like the S&P 500, not all gains are created equal. The lion’s share of the S&P 500’s gains came from a few tech stocks, namely: Facebook (+33.09% for 2020), Apple (+80.75% for 2020), Amazon (+76.26% for 2020), Netflix (+67.11% for 2020), Google (+30.85% for 2020) and Microsoft (+41.04% for 2020), otherwise known as the FAANGM stocks.
Not to be out-done, small-cap stacks began to really rally in the 4th quarter, the Russell 2000 index was up 28.97% for that period while the S&P 500 gained 11.10%
It’s been a while since we could say value beat growth (technically, based on the chart above, small-caps beat large-caps, but let’s not quibble over the details) – will this trend continue into 2021? Time will tell.
Maybe the crypto bro’s were right, cryptocurrencies, bitcoin in particular, will rule the world and money as you know it will be changed forever. Based on bitcoin’s and ethereum’s price appreciation in 2020, they may be on to something.
Bitcoin’s price in 2020 really started to rise around the same time that small-cap stocks rose – correlation or causality? No idea, but it is an interesting coincidence.
We all remember the first bitcoin craze in late 2017 when the price per coin was less than $1,000 and nearly reached $20,000 by the end of the year before settling around $13,000 a coin. Fast forward through ’18 and ’19 and the first 9 months of 2020 and your price hovered around $10,000. Then it really began to move these last 3 months, a bitcoin as of this writing will set you back about $31,000.
Will bitcoin put an end to the need for fiat currency and digitize our money, taking our money virtual along with everything else about us? Perhaps. Perhaps bitcoin and other cryptocurrencies are the canary in the hard-currency coal mine. I’m not sure if that’s an apt analogy but it sounded good while I was writing it.
Where can its price go from here? Can it go higher? Sure, it can. As its adoption and popularity increases, and people keep buying and talking (and writing) about it, and then more and more buy it. Then something interesting begins to happen – FOMO (Fear Of Missing Out) kicks in and nobody wants to be the guy or gal that missed the chance to make millions, so they and everyone else starts buying, regardless of price. Once prices go there, no price is too high. The music has to stop sometime, though, and when it does (it always does), prices usually fall as fast as they went up. Calling a bubble isn’t difficult, the hard part is calling the “when-will-it-burst-part”. I’m still working on that last part.
2021 and Beyond
So what will 2021 bring? Who knows for sure and I’m not in the prediction business. Hopefully, these vaccine rollouts will bring a return to some semblance of “normalcy” and I use the term loosely because that means something different for everybody. Whatever normal is for you, I do wish you and yours good health and good cheer in the New Year.