2020 Stock Market Review

What a year.

The market started off strong in 2020, hitting new highs in February. Then the crash came. As the COVID-19 pandemic spread, economies fell. The stock market saw one of its sharpest crashes ever, losing more than 30% in a month. It bottomed out on March 23rd and has been climbing ever since. The market established new highs in August and has been setting even more highs to end 2020.

In 2020, countries went into lockdowns, sports were halted, and jobs and education went remote. Unemployment skyrocketed and GDP cratered. The Federal Reserve passed trillions of dollars of stimulus to help the economy. There was a drama-filled presidential election. And vaccines were developed in record time.

Gains for the Year

Q4

Quarter 4 was a fitting end to a wild year. The quarter started volatile for most of October due to the uncertainty of the presidential election. After the election though, the market took off as positive news surrounding vaccines came out. While the number of COVID-19 cases rose, two vaccines were approved and distributed, causing the market to reach all-time highs. And after the newest stimulus bill was passed, we head into 2021 near record highs.

In Quarter 4 alone, the S&P 500 was up 10.8%, the NASDAQ gained 14.1%, and the Dow was positive by 9.5%.

Sector Gains

Not everything was up this year. While some sectors had great returns in 2020, some were negative. There were also some sectors that did just average. Most of the movement of money in and out of sectors this year was related to the pandemic and lockdowns.

Pandemic and Vaccine Update

The good news: Vaccines have been approved and are being given. Pfizer and Moderna both had their vaccines approved by the FDA in December. They have started distributing them and millions have already received their first dose.

There are still three major players developing their vaccines for 2021. Johnson & Johnson, Novavax, and AstraZeneca are all working on potential vaccines that are expected in 2021.

The bad news: cases are still surging. Globally there have been over 80 million cases. In the US there have been over 19 million cases and 337,000 deaths.

Stock of the Year

There have been several companies in 2020 that seemed to be in the news every day. Picking just one to be the stock of the year wasn’t easy. But the award this year goes to Tesla.

Tesla has returned a remarkable 700% in 2020. Their market cap is over $600 billion, making them the sixth most valued company in the United States. Along the ride, Elon Musk, Tesla’s CEO, has become the second richest person in the world. Tesla had even executed a 5-for-1 stock split over the summer to make their stock more attractive. It worked, as the price has only gone up since then. The potential of their electric and autonomous technology for vehicles is expected to drive future success for the company.

Honorable mentions for 2020 go to Zoom and Novavax. Zoom, the video communication company was up more than 400% for 2020 as most corporate workers had to work remotely and video calls became an everyday occurrence. Novavax went from a no-name vaccine development company to the cinderella story of the year. Their stock was up more than 2000% in 2020 as they work to develop a vaccine.

IPOs and SPACs

2020 was the year of SPACs. There have been over 100 SPACs this year, a record number. Some of the biggest names include DraftKings, Nikola, and QuantumScape.

SPACs (special purpose acquisition companies) are a relatively new term; most still don’t understand how they work. But many companies have taken advantage of this simpler process of going public. The gross proceeds for SPACs in 2020 were higher than in 2018 and 2019 combined.

Several other big-name companies have come to market in a traditional IPO in 2020. Some notable ones this year include Snowflake, Palantir, Airbnb, and DoorDash. All these companies saw their share prices skyrocket after going public.

E-commerce

The world changes fast. And to quote Ferris Bueller, “If you don’t stop and look around once in a while, you could miss it.”

One industry that has changed forever from this year is the e-commerce industry. We saw ten years of e-commerce growth in three months of 2020. The percentage of sales done online compared to in-person had doubled in one quarter.

Many companies in the industry were able to benefit from this change in consumer behavior. Amazon’s stock was up around 70% this year as more people bought online. Shopify, a Canadian e-commerce platform that allows users to create their own websites and sell products, was up over 160% in 2020. Chewy was the poster child for the shift in online spending by consumers. The online pet supply company saw record demand as consumers bought their pet’s food and other items online and had them delivered to their doorsteps instead of having to drive to the store to pick them up. The company’s stock was up around 200% for the year.

Electric Vehicles

2020 has been great for new car companies. Tesla has had a great year. Their market cap is now worth as much as the nine largest car companies globally combined. Other companies have also taken advantage of the great growth in this industry.

Workhorse Group, Nio, and Nikola have all become popular names in the automotive industry this year. Workhorse has given a 500% return to investors in 2020 after the stock struggled to gain traction for years. Nio, a Chinese company, puts Workhorse to shame after its stock price increased over 1,000% in 2020. Nikola, on the other hand, has not been as successful. The zero-emission vehicle manufacturer has faced a variety of issues this year, including a major lawsuit and its CEO stepping down.

While all these companies offer great ideas, it may be years before they are able to create sustainable, high-level profits.

Lowered Borrowing Rates

At the onset of the pandemic, the Federal Reserve met and lowered interest rates. In March, the Federal Reserve cut rates to a range of 0–0.25%. Lower interest rates mean it is cheaper to take on debt and will help companies spend.

Because of the lowered interest rates, yields on Treasury bills plummeted this year as well. The two-year yield, which was around 1.5% at the beginning of 2020, is around 0.15%. The ten-year, which was around 1.8% at the start of 2020, is now down to 0.9%.

With low-interest rates and bond yields, the stock market has become an attractive area to seek a return. The lack of alternatives for investing has caused the price-to-earnings ratio to increase. The P/E ratio of the S&P 500 is about 37 right now. The only two times in history that it has been higher were during the dot-com bubble and the Great Recession in the late 2000s. This indicates stocks are overpriced, compared to historical prices.

Robinhood Traders

Robinhood is only seven years old but disrupting an industry and companies as old as dirt. The brokerage industry has had to adapt to keep up with the newcomer. Robinhood was the first major company to offer free trading, now almost all major investment banks offer it. Robinhood has gained so many users they’ve been given the nickname “Robinhood Traders.”

Robinhood added 5 million accounts in the first three quarters of 2020. They now have 15 million accounts, on par with competitors Charles Schwab and TD Ameritrade. Robinhood provides a design and process that makes it simple to sign up and subsequently buy and sell stocks.

The company has become a popular option for Millennial and Gen Z investors, as their customers’ median age is 31 and 70% of their customers are in one of these two generations. Part of this growth of users in similar demographics helped coin the “Robinhood Traders” nickname. Many users of Robinhood invest in similar companies, focusing more on a company’s narratives and themes and less on business fundamentals. This has led to a number of industries or stocks to be propped up and claimed by some as overvalued.

Bitcoin

While we were all complaining about 2020, Bitcoin was partying like it was 2017. Due to a variety of factors, cryptocurrency prices have skyrocketed this year. Of course, the most popular cryptocurrency, Bitcoin, received the most attention.

Investors have flocked to Bitcoin after the US Federal Reserve printed trillions of dollars in stimulus. Since there is a finite amount of Bitcoin, it is viewed as a hedge to inflation, similar to gold. Many notable companies have started accepting Bitcoin as a form of payment, including Microsoft, Burger King, and Twitch. Several successful investors have also stated they are now invested in Bitcoin, such as Stanley Druckenmiller and Bill Miller. All these reasons have helped the cryptocurrency’s price triple in 2020.

Bitcoin was trading just under $7,200 a coin at the beginning of 2020. The price is now above $26,000. The biggest cryptocurrency had solid gains from its low in mid-March until mid-October. But since mid-October, the price has taken off, doubling in under two months. In mid-December, the price crossed above $20,000, garnering the attention of many skeptical investors. Other cryptocurrencies, such as Ethereum and Litecoin have also seen their prices rise this year.

2020 was one hell of a year. Can’t wait to find out what 2021 has in store.