December 2020 Market Update
Well another year is almost in the books. 2020 may end up being a year many will want to forget, but it was certainly extraordinary. The investment markets had, by some measures, the most wild ride in history. COVID-19 fears caused a major “waterfall” decline in almost every major investment index in February, and by late March, the S&P 500 hard dropped more than 34%,* making it one of worst-and-fastest declines in market history. The economy ground to a halt and, at its worst point, unemployment exceeded 10%.
Enter congress and the fed. On March 27th, the The Coronavirus Aid, Relief, and Economic Security Act (CARES) was passed by congress, bringing $2.2 trillion of stimulus funds to individuals and businesses. Also in March, the Federal Reserve (“Fed”) cut short-term interest rates to 0 – 0.25%. While unemployment and wide ranging economic measures worsened, the investments markets did what they’ve always done after bear market declines; markets began to, as the old market idiom goes, “climb a wall of worry” (rising even as news continued to worsen). Indeed, April and May both saw positive returns for most major indices and by August, the S&P 500 was back to its February (pre-COVID) highs, making the February-March bear market one of the briefest in history.
This counter-intuitive rise in stocks reflects the idea that markets are typically looking 6-12 months into the future. In this case, the stock market recovery reflected the markets belief that the U.S. economy would be rebounding by some time in the first half of 2021.
Now, with just two weeks of 2020 remaining, we find the S&P 500 up over 15% year-to-date (YTD)**. This gain was fueled by an unusually strong November increase of more than +10.8%,*** as results of two highly-effective vaccine trials was released. That is the single best November performance on record.
So, what’s next? Is this a good time to stay invested and/or invest more money? As always, our crystal ball continues to be plenty foggy, but by historical standards, a single month’s performance like November is usually a good omen. The chart below shows what markets have historically done following 10% or greater gains in a single month. Viridian’s investment committee obviously looks at a tremendous amount research, and this is just one small piece, but it helps answer the question of whether to stay invested in stocks. We think the answer is yes.