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Quick Takes

  • Finish strong. Stocks closed the quarter, and 2020, with strong returns, despite lingering economic concerns brought on by a resurgence in coronavirus cases, challenges with the vaccine roll‐out, and uncertainty around the policy implications following the Georgia Senate runoff outcome.
  • Highs and lows. Most major stock indices finished the year at/near all‐time highs while bond yields finished the year at/near record lows. Likewise, mortgage rates finished at/near record lows and Financial Conditions are the loosest on record.
  • The year of COVID‐19. Nothing defined 2020 more than the coronavirus pandemic. On that front, the year ended with global deaths from Covid‐19 passing 1.8 million. New York and Florida both broke their previous daily records for cases. A new strain appeared in the U.K. and is now in the U.S.
  • Much better, but room for improvement.The U.S. economy continued to recover, but remains below pre‐pandemic levels even after record third‐quarter GDP, and employment that is still 9.8 million jobs short of its total before coronavirus hit in March.

Asset Class Performance

Though not quite as high as November’s levels, all major asset classes had positive total returns again in December and resulted in all asset classes being positive for the fourth quarter and all but Real Estate positive for 2020.

2020: A year of Pandemic… and of Recovery

December capped a very strong quarter for capital markets, and an unforgettable year overall, with the continuation of a broad, robust rally. Although markets couldn’t quite match November’s generous returns, most major asset classes were positive again in December, and for the final quarter of 2020. That is a stark contrast to how the year started, when virtually all risk assets had substantial pullbacks as the COVID‐19 pandemic spread across the globe and most economies were largely shut down during the first quarter.

In fact, the “that was then, this is now” contrast between the worst quarter (Q1) and best quarter (Q2) in 2020 for the S&P 500 was itself a record – a 40 percentage point difference. As shown in the chart below, in the last 33 years, the ‐19.6% decline in Q1‐2020 was only out done by the ‐21.9 drop in Q4‐2008. The quarterly period actually masks some of the damage felt in that decline. The sharp collapse in February and March, as Covid‐19 spread outside of China and forced countries into lockdowns, was the most rapid ‐30%drawdown that the S&P 500 has ever suffered. It also marked the end of the longest bull market on record. The fact that the catalyst of the decline was not due directly to financial or economic damage, but rather damage to health, or even death, made it a truly scary and uncertain period. But in the second and third quarters, as the virus’ behavior was better understood, and mitigation efforts became more widespread, economies opened back up again. Equities stormed back, with the S&P 500 climbing more than +66%from its March 23 low, resulting in the shortest bear market in history. Halting the descent wasn’t easy, it required decisive and massive action by the Federal Reserve and other major central banks to shore up the credit markets. It also required decisive and massive fiscal policy from government officials to shore up small businesses and consumers.

It wasn’t easy for investors along the way. Sure, the S&P 500 made 33 record highs in 2020, but it was anything but a smooth ride. The index was up or down at least 1% in 110 of the year’s 253 trading days, compared to just 38 days in 2019. And those 110 daily swings included two rallies of more than+9% and a ‐12% single‐day drop in March. However, in the end the time‐tested formula of “diversification + time in the market” rewarded disciplined long‐term investors once again.

Bottom Line: 2020 may have been one the most challenging years in our lifetimes. Thanks to decisive and substantial action by fiscal and monetary policymakers, stock and bond markets overcame a global pandemic to end the year near all‐time highs. And although the economy still has a ways to go to surpass pre‐pandemic levels it is on the right path.

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Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds June be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

© 2020 Prime Capital Investment Advisors, 6201 College Blvd., 7th Floor, Overland Park, KS 66211.

Chris Bouffard
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