Looking for longer-term trends that might shape the next few years
Let’s be honest for a second: the DJIA, the S&P 500, and NASDAQ all delivered one of the most surprising years in recent history. And while many are happy to see 2020 in the rear-view mirror, the 2020 performance for the major U.S. indices was nothing short of impressive, especially given the headwinds of COVID-19 and the drama surrounding the presidential election.
Who could have predicted that:
- The DJIA would rise 10.2% in Q4 and end the year up 7.3%; or
- The S&P 500 would rise 11.7% in Q4 and end the year up 16.3%; or
- NASDAQ would rise 15.7% in Q4 and end the year up 43.6%?
As we enter 2021, there will be no shortage of talking-heads trying to scare investors that we might be in a stock market bubble. And they might be right.
On the flip-side, there are just as many talking-heads suggesting that stock markets still have plenty of room to grow, and that this time it really is different. The reality is that it’s a topic that divides some of the brightest minds in finance.
Rather than jump down that rabbit hole, let’s instead try to decipher what the stock markets are telling us. Are trends developing that might shape the next few years? Has COVID-19 forever shifted the landscape of some industries at the expense of others? Maybe 2020’s 5 best- and worst-performing stocks from the DJIA and the S&P 500 can inform.
Best/Worst 2020 Stocks in the DJIA
Within the 30-stock DJIA, 2020 saw almost 2/3 record positive performance and the gap between the best and the worst performer was wide.
| Company | 2020 Total Return |
| Apple Inc. | +82.3% |
| Microsoft Corporation | +42.5% |
| Nike | +41.0% |
| Salesforce.com Inc. | +36.8% |
| Caterpillar Inc. | +27.0% |
| Merck & Co. Inc. | -7.2% |
| Intel Corporation | -14.7% |
| Chevron Corporation | -26.0% |
| Walgreens Boots Alliance | -29.4% |
| The Boeing Company | -33.9% |
Best/Worst 2020 Stocks in the S&P 500
As the chart below demonstrates, the gap between the best and the worst performer in the S&P 500 was obscenely wide. Some might argue that the gap defies logic altogether.
| Company | 2020 Total Return |
| Tesla | +743.1% |
| Etsy | +301.6% |
| Nvidia | +121.9% |
| PayPal | +116.5% |
| L Brands | +105.5% |
| Marathon Oil Corporation | -51.1% |
| TechnipFMC PLC | -56.1% |
| Norwegian Cruise | -56.2% |
| Carnival Corp | -57.2% |
| Occidental Petroleum Corp. | -57.7% |
Source for tables: Yahoo Finance
We Know What Happened
The COVID-19 pandemic shocked markets early in the year, essentially freezing our global economy as businesses and schools shut down.
Those who could, shifted to working and shopping from home. Unfortunately, businesses that relied on a consumer’s physical presence suffered – think airlines, restaurants and hotels.
But as vaccines are being distributed, ask yourself this: are these short-term shifts or longer-term ones? And if you think the shifts are longer-term, what should you do about it?
What Should You Do Now?
The answer to that question is, it depends on your personal situation. From an investment standpoint, the answer is clear: diversification. This past year has shown just how important it is. A well-diversified portfolio would have held most, if not all, of these top performers. Of course the same is true of the worst performers, but the dramatic outperformance of the winners carried the losers’ weight.
At Patriot, we would encourage you to think beyond just investing.
Think about things like:
- Do you have a good financial plan?
- Do you have enough cash-reserves in case of an emergency?
- Are your estate planning documents (will, power of attorney, health-care directive, etc.) updated?
- Do you have adequate insurance that covers your risks?
- Is your house equipped for you to work from home long-term?
Finally, if you have any questions regarding your asset allocation or your financial plan please reach out so we can discuss it together.