2020 Review — Enjoying the roller-coaster

15/01/21

All but European market investors enjoyed the roller-coaster ride this year, which turned out to be another Bull year, driven by the technology sector that received a strong boost from overall digitalization, e-commerce and work from home mode. We saw stock market records in USA despite significant damage coronavirus did to the economy: IMF forecasts that US GDP 2020 will decline by 4.3%, while in Europe — by 7.2%. Additionally, the situation was complicated by uncertainty regarding “deal or no deal” Brexit as deadline loomed , sending FTSE 100 down by 14.3% in 2020 and maintaining broader European market in the red zone.

To revive the economies, Central Banks and governments across the globe provided an unprecedented support to businesses and individuals — in 2020, Americans enjoyed once in a life-time opportunity to receive the helicopter money of $1’800. This all has led to building confidence in continuation of loose monetary policy and low interest rates at least in the mid-term (for instance, Federal Reserve signalled the intention to keep interest rates near zero for at least the next 5 years), which in turn has stimulated new money inflow in the stock markets.

Quality stocks have also enjoyed the rally in all markets and managed to take over both value and growth stocks in Europe. In USA the situation was a bit different as growth companies’ share prices went through the roof, therefore delivering better performance compared to quality stocks. It is worth noticing that 2020 marked the largest underperformance of value vs. growth style in stock market history[1]. Extremely good performance of growth style can be again explained by the massive gains by technology companies, which have been investors’ darlings for a long time as they marched in their quest to further enlarge footprint of their enormous eco-systems. The worst performers sector-wise were traditional value style representatives — Energy and Financials- which came as no surprise due to the downward-driven oil prices and low interest rates.

2020 was a year of both great opportunities and bitter disappointments and is likely to be remembered for a long time for extraordinary events it brought and for the trends it has set.

[1] https://www.dimensional.com/us-en/insights/when-its-value-versus-growth-history-is-on-values-side