2020 Q4 Market Update

State of the Markets

In the final quarter of 2020, markets continued to process economic, health, and political information through a very optimistic lens, resulting in strong returns across all asset classes for the quarter and relatively good numbers for the year. 

As of December 31, the global stock market (MSCI ACWI IMI) was up 15.7% for the quarter, resulting in a YTD return of 16.3%. The U.S. stock market (Russell 3000) had a positive performance of 14.7% for the quarter, resulting in a YTD gain of 20.9%. International developed markets (MSCI World ex USA IMI) rose 16.1% for the quarter, flipping performance for the year to positive 8.3%. Emerging markets (MSCI Emerging Markets IMI) performed well, up 19.9% for the quarter and 18.4% for the year. Publicly traded real estate (S&P Global REIT) gained 12.6% for the quarter, but is still down 9.1% for the year. The U.S. bond market (Bloomberg Barclays U.S. Aggregate Bond Index) had a positive return of 0.7% for the quarter, bringing YTD returns to 7.1%.

The total returns for major asset classes are below.

The year 2020 proved to be one of the most tumultuous in modern history, marked by a number of circumstances that were far outside of our normal experience. But the year also demonstrated the resilience of people, our economy, institutions, and financial markets.

COVID-19 was already in the news early in the year, with hope that it would be contained. Concerns grew as more countries began reporting cases. By early March, the outbreak was labeled a global pandemic. The spike in cases resulted in economic contraction, as personal and work-related activities were strictly limited. Governments and central banks worked to cushion the blow, providing financial support for individuals and businesses. Another surge of infections came during the summer and another in the fall. It is far from over, and the total number of deaths is disheartening. However, we have adapted and improved our testing and treatment along the way and are currently rolling out the vaccine. 

On top of the health crisis, there was widespread civil unrest over the summer in the U.S. tied to policing and racial justice. By the fall, America was focused on the U.S. presidential election, which to say the least, has been an unparalleled journey, even through today. 

For investors, the year was characterized by sharp swings in the stock markets. March saw stock markets decline significantly from previous highs as the pandemic worsened. This was followed by a rally in April and a continued upward trend through the rest of the year. Ultimately, despite a sequence of epic events and continued concerns over the pandemic, global stock market returns in 2020 were very attractive. 

Fixed income markets mirrored the extremes seen in the equity markets, with a wide dispersion in returns between U.S. Treasuries and all other types of bonds, including high-grade corporate bonds and AAA municipals. But like the stock market, the negative results in March of 2020 reversed, and returns for the total bond market were positive for the year. 

Looking Forward

We have shared a great deal of information over time about divergences within the stock market and how that that affects different strategies. Those divergences can be seen through various lenses: 

  • Top five companies in the S&P 500 versus the other 495 companies.
  • Larger companies versus smaller companies in general.
  • Companies with stable earnings trading at low valuations (value) versus companies with potentially high future earnings trading at high valuations (growth). 

The trends we've seen over the last several years continued in 2020, as evidenced in the chart below, which illustrates long-term differences between value and growth in the total U.S. market (represented by Russell 3000).

We won't go into a lot of details, other than to re-emphasize the following:

  • This is not the first-time divergence has occurred and affected performance in the short-term.
  • Segments of the market that perform exceptionally well generally end up with higher valuations.
  • The opposite is true; areas that underperform generally get cheaper. 
  • High current valuations generally lead to lower future returns, and low valuations generally lead to higher future returns. 
  • The divergence in valuations is currently extreme, as evidenced in the next chart. (Data from Morningstar, Inc., as of 9/30/2020, indicates that large-growth segments of the global equity markets are overvalued, while small-value segments are undervalued.)
  • Within the stock market, trends can go to extremes, but when they revert, they can do so fast and strong.

Just as we saw an acceleration of this divergence in 2020, we have seen a significant turnaround in the last several months. A continuation of this reversion may be very beneficial for diversified strategies that have not kept up with concentrated indexes. 


In late December, a long-anticipated stimulus package was passed. The package created immediate $600 stimulus checks, a new round of PPP loans, and other support for small businesses. The details are complicated, so we will not cover them here, but you can find a good summary of the program on our website

We look forward to a new era, where we have control of COVID-19, and our economy and our lives get back toward normal. Cheers to 2021.  

As always, thank you for your trust and confidence. Please reach out if you have any questions. 

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