Gord Pape
Dec. 29, 2020
It was a year we’d all like to forget, but never will. A year in which more than 1.6 million people died of a hitherto unknown disease. A year in which the world economy was decimated. A year in which many small businesses went under, unemployment soared, and our personal lives were turned upside down.
It was also a year when, astonishingly, some major stock indexes set record highs. Many investors are ending 2020 with some nice profits in their portfolios.
As the year began, stock markets were strong. Unemployment was near record lows. We were in what is known as a Goldilocks economy … not too hot, not too cold.
There were some murmurs about a new virus in a remote part of China, but no one paid much attention except a few epidemiologists. That was the other side of the world; things were fine here.
In mid-February, we started to become aware that things weren’t fine at all. The words coronavirus and COVID-19 suddenly became real and dangerous. Governments reacted. Businesses were shut down. Offices laid off staff or told them to work from home. People were locked in their houses or apartments, forbidden even to see loved ones. Borders were closed. Life as we had always known it suddenly vanished.
We’ve been living in this bizarre new world for almost a year now. There are signs of hope on the horizon, in the form of new vaccines. But it’s going to be many months before enough people are immunized to allow life to return to some semblance of normalcy.
The stock market’s initial reaction to the onset of the pandemic was predictable. All the major world indexes plunged. The Dow lost 8,571 points (29 per cent) between Feb. 5 and March 18. The S&P 500 fell 923 points (27 per cent). Nasdaq slipped 2,400 points (25 per cent). In Toronto, the S&P/TSX Composite was down 5,287 points (30 per cent) in roughly the same time frame. It was a similar story no matter where you looked: London, Frankfurt, Tokyo, Hong Kong.
What was not so predictable was the sharp rebound in share prices. This turned out to be the shortest bear market in history. By mid-August, the S&P 500 had regained all the losses from the February-March plunge and moved into new record territory. Nasdaq and the Dow followed suit, but the TSX is still below its record high.
But it was a narrow rally, led by a few key sectors: information technology, big box retailers, transportation companies, and green energy. Any company involved in the hospitality industry, travel, or real estate took a beating.
Some of the better-known top performers of 2020 included:
Tesla (TSLA-Q). Tesla became the most highly valued auto maker in the world with a market cap of over $600 billion (U.S.). That surpassed General Motors, despite the fact the electric car manufacturer only has a fraction of GM’s output.
Zoom Video Communications (ZM-Q). Relatively few people had heard of Zoom at the end of 2019. Now everyone knows about it. We use Zoom for medical consultations, business conferences, legal meetings, and family get-togethers.
Shopify (SHOP-T). Lockdowns meant that the main source of sales for most businesses was online. If you didn’t have a strong web platform, you were in deep trouble. Shopify to the rescue! The Ottawa-based company provides the full range of e-commerce services, from sales to inventory. The company has over a million clients and third-quarter sales of $767.4 million (U.S.) were up 96 per cent from last year.
FedEx Corporation (FDX-N). Both FedEx and United Parcel Service (UPS-N) saw the demand for their services increase significantly during the year as stay-at-home orders meant most of us shifted our shopping online. FedEx stock ended 2019 at $151.21 (U.S.).
Apple (AAPL-Q). Apple continued to thrive in 2020 as people made more use of their cell phones, tablets, and computers to stay in touch.
Amazon.com (AMZN-Q). Amazon was right there to take advantage of the online shopping binge.
Bonds also delivered a pleasant surprise for investors. The U.S. Federal Reserve Board had already started to cut rates in 2019, but the onset of the pandemic forced the U.S. central bank to take drastic action. The federal funds rate was slashed to near zero and the Bank of Canada followed suit. Yields on 10-year benchmark government bonds fell to all-time lows in both countries.
Bond prices strengthened as a result. As of Dec. 15, the FTSE Canada Universe Bond Index was up 7.8 per cent for the year. The Long-Term Bond Index was ahead 9.94 per cent.
In short, it was a dreadful year to endure from the point of view of health and lifestyle. But investors did surprisingly well, whether they were holding bonds or stocks. That’s something to be grateful for. But what we all want from 2021 is an end to the pandemic and a return to a normal lifestyle.
