US stocks ended 2020 with a gain of more than 16% – well above the historical average – after a rally led by the tech sector pulled Wall Street from a brief bear market to a low record in defiance of the pandemic, recession and political upheaval.
The Nasdaq Composite, dominated by tech giants such as Apple, Microsoft, Alphabet and Amazon, gained more than 44% this year to record its best performance since 2009, as labor and consumer spending moved in line.
The S&P 500’s annual gain of 16.3% compared to an average of 11.8% over the previous decade. It has now recorded a positive year in 14 of the first 21 years of the century.
“It has been a generally positive year for stocks, unlike an unusually difficult year for all of us,” said Jack Ablin, Cresset Capital’s chief investment officer.
Activity in New York was stifled in the last trading session of 2020 on Thursday, with many investors taking the week between Christmas and New Years. The S&P 500 rose 0.6%, while the Nasdaq was 0.1% higher.
Equally calm was the government debt market, with the yield on 10-year Treasuries falling slightly to 0.91 percent. This figure, however, would have seemed implausible at the start of the year: it started at nearly 2% before the coronavirus pandemic prompted the Federal Reserve to cut key rates and inject billions of dollars into the markets for protect the financial system and support a locked US economy.
“If we had been told that a pandemic would strike in February 2020 and markets would fall and yields collapsed, we would have agreed,” said Andrew Brenner, head of international fixed income at National Alliance Securities . “If we had then added that the Fed would have come to the rescue and gone ‘all in’, we would still be with you.
“But then add that this would be one of the best markets for stocks and risk we have ever seen, then you would have lost us.”
With very low returns on safe assets, investors were willing to pay more for companies with the prospect of fast growing cash flow, especially those whose businesses made great strides in 2020.
Zoom Video Communications’ shares, for example, increased by almost 400% as video conferencing replaced face-to-face meetings and family reunions. Amid a rush to upgrade technology infrastructure, semiconductor companies have also been big winners. AMD shares have doubled this year.
Apple, which in August became the first state-owned company worth $ 2 billion, ended the year up 81%.
And then there were the stocks favored by retail and institutional investors. Electric car maker Tesla – ending the year on a more profitable basis, with strong growth prospects and maintaining a place in the S&P 500 – is up about 750 percent.
The rally widened beyond growth stocks to more firmly encompass economically sensitive stocks in November, after the first breakthroughs of the Covid-19 vaccine.
As a result, the energy and banking sectors were the best performers in the last two months of the year, at 28% and 20% respectively. However, this was not enough to compensate for the losses suffered earlier by the two sectors; finance lost 4.1% in 2020 and energy was consumed at 37.3%.
After the worst oil crash in decades earlier this year, the U.S. benchmark West Texas Intermediate ended 2020 at $ 48.40 per barrel, down 21% year-to-date, but just below. above the price that many crude producers need to continue to make a profit.
The US dollar rose 0.3% on Friday, measured against a basket of currencies, but is almost 7% lower than at the start of the year, its worst annual performance since 2017.