Like most, I am happy to say goodbye to 2020, a challenging year that brought with it circumstances that affected our daily lives that we never could have imagined previously. However, markets held up much better than I ever would have expected given those circumstances. The fact that the S&P 500 is actually up 17.5% despite the economy being essentially shut down for part of the year is astounding.
Not to dwell on the recent past, but as investors we need to remember: It was just 10 months ago when the pandemic began to take hold and we saw the S&P 500 begin to tank. From Feb. 21 to March 23 the index fell nearly 34%. During those 22 trading days, the S&P 500 experienced 19 "volatile" days, which I define as days when the index rose or fell at least 1%; 14 of those were down days. That period included 12 days with moves of greater than 4% and three days when it rose or fell at least 9%. Those three days happened in succession; the index fell 9.5% on March 12, shot up 9.3% on March 13 and dropped 12% on the March 14. That was circa 2008-2009 market action at its best.
Since March 23, the S&P 500 has risen nearly 67%, and no, that is not a typo; I checked the math several times because I did not believe it myself. In terms of volatility, in the 195 trading days since, there have been 85 "volatile" days, 56 of which were "up" days. During that entire stretch, there were just four days that the Index was up or down at least 4%.
Interestingly, large value as measured by the Russell 1000 Value Index (down 38%) was hit harder than large growth, as measured by the Russell 1000 Growth Index (down 31%), during that crazy Feb. 21 through March 23 period. In my experience, value typically holds up better than growth in periods of market turmoil, but not in 2020, a year that is an enigma wrapped in a conundrum and smothered in a Catch-22.
Since March 23, growth has trounced value, with the Russell 1000 Growth Index (up 84.5%) trouncing Russell 1000 Value (up 62%). For the year to date, the Russell 1000 Value Index is barely in positive territory (up 1.5%) while Russell 1000 Growth has risen 38.2%.
I've gotten the question countless times as to why the markets held up so well in the face of the pandemic. In my humble opinion, there are three reasons:
- Ridiculously low interest rates
- A market that has been looking past the pandemic for many months
- The belief that there will be divided government in 2021-2022 and no major tax legislation or massive expansions of government programs
Goodbye, 2020, the year of the pandemic, the year of growth, the year of massive volatility packed into a single month.
