October’s election-related uncertainty resulted in the worst month for the stock market since March, but the market recovered throughout November and December leading the market to post overall gains for the year despite unprecedented economic pressure created by the coronavirus pandemic.
Small-cap stocks outperformed large-cap stocks in 4Q20, likely reflecting increasing economic optimism as vaccination efforts progress, narrowing small-cap’s underperformance to large-cap stocks for the full year. Value stocks also started to mount a comeback in 4Q20, modestly outperforming blend and growth stocks, as investors look toward out-of-favor sectors and stocks in anticipation of a recovering economy and a “return to normal”.
Emerging market stocks outperformed international developed markets, and both the MSCI Emerging Market and MSCI EAFE indices outperformed U.S. large cap indices while underperforming the U.S. small cap index.
The underlying economy showed sustained recovery through 3Q20 and into the start of 4Q20, but the recovery soon showed signs of sputtering as jobless claims were higher-than-expected in late-November and throughout December and retail sales fell in November as well. The recently passed stimulus bill should help support economic growth into 2021, but the surging pandemic could imply lower 4Q20 and 1Q21 GDP growth as the country waits for vaccines to become available.
A great deal of uncertainty remains heading into 2021, including surging coronavirus infections and a slower-than-hoped vaccine rollout, a recovering economy, and a unified Democrat government. We believe there are still numerous tailwinds that should result in solid 2021 market returns, but maintaining a balanced and well-diversified investment approach is critical for producing superior risk-adjusted returns, while continuing to look for investment opportunities to deploy capital despite potential uncertainty.
| Index | 4th Quarter 2020 | Calendar Year 2020 |
| Dow Jones Industrial Average | 10.73% | 9.72% |
| S&P 500 | 12.15% | 18.40% |
| Russell 2000 | 31.37% | 19.96% |
| Bloomberg Barclays U.S. Agg Bond | 0.67% | 7.51% |
| MSCI EAFE Index | 16.09% | 8.28% |
| MSCI EM Index | 19.77% | 18.69% |
Sources: Y Charts and J.P. Morgan Asset Management
Data as of December 31, 2020. Past performance cannot guarantee future results.
This information is intended for educational purposes only. It is not intended to provide any investment advice or provide the basis for any investment decisions. You should consult your financial adviser prior to making any decision based on any specific information contained herein.
Tags: Market Recap