Market Returns in 2020
Market Returns in 2020. At the end of every calendar year and start of the next one it is time to reflect on the markets and your portfolio. It is only a common sense to do so. Yes, buy and hold works but buy and forget does not. Even if you are not selling or rebalancing at end of the year you are likely adding to your retirement or brokerage accounts in 2021. Or you may be making tactical changes to your asset allocation. Like most investors, you are probably thinking, does it make sense to buy out of favor sectors and asset classes or does it make sense to reinforce your winners?
With that in mind, it is prudent to review the broader indices, stock market sector, and asset class returns in 2020. I wrote in depth about the economy, stock market, and my dividend growth portfolio in my 2020 Year in Review article. You can read that article as a starting point and then return here.
Stock Sector Market Returns in 2020
But what about stock sectors? How did they do in 2020 relative to each other? You can see in the chart below from StockRover* that all 11 of the sectors suffered during the bear market. But they did not suffer equally. Energy was down about -61% at its nadir. Technology was down a mere -23%. The recovery also was not equal. Technology was up +45% while Consumer Cyclical was up +48% at yearend having their best return in years. The market clearly differentiating between sectors and companies that are benefitting from the COVID-10 pandemic and those that are not. The Energy sector is still down in aggregate at -33%.
The 2020 sector market returns in tabular form makes it clear which sectors have performed well in 2020 and which have not. If you are an ETF investor or even an individual stock investor, does it make sense to invest in underperforming sectors or reinforce winners? That is a complicated question. Overperformance and underperformance can last for years. Technology continues to move higher as revenue and earnings per share continue to rise in response to innovation seemingly year after year, but so does valuation. On the other hand, Energy continues to perform poorly for many years. Let’s take a look at the underperforming sectors.
Energy is faced with low oil prices and too much supply due to technological advances and innovation. A generation ago oil could not be extracted by fracking and from oil sands at least economically. The increasing adaptation of electric vehicles and hybrid vehicles will also reduce demand for oil over time. I personally do not own any stocks in the Energy sector.
Real Estate is another poorly performing sector as the COVID-19 pandemic hit rent collections throughout the year. The pandemic also accelerated bankruptcies and rationalization of physical footprints by many retailers. Lower demand means lower rental prices per square foot.
The other two sectors that have performed comparatively poorly were Financial Services and Utilities. Financial Services are being affected by low Fed Funds Rate and declining net interest margins. Utilities have been hit by lower demand during the pandemic. These sectors interest me much more from the perspective of trying to find out of favor sectors. There are still some banks and utilities that are trading below their historical valuation and have high yields. I recently wrote an article on NorthWestern Corporation (NWE).
I also track some industries separately. Aerospace & Defense, which is in the Industrials sector, has performed poorly and is down -14%. I recently wrote an article on General Dynamics (GD).
Asset Class Market Returns in 2020
What about asset classes? This is often of more interest for those investing in retirement plans. Many people make tactical adjustments to their asset allocation for new money. Alternatively, they rebalance existing retirement portfolios, so their asset allocation does not deviate from their target. I do not typically spend too much time writing about asset classes. But I present this information for my readers that are interested.
It is clear that tech stocks far outperformed the rest of the market. Many tech stocks benefitted from the pandemic. On the other hand, REITs, cash, and high-yield dividend stocks performed poorly on a relative basis. I discussed above about the factors affecting Real Estate. Cash is of course performing poorly due to low interest rates. High yield dividend stocks were affected by low earnings and cash flow leading to dividend cuts and suspensions. Other asset classes that performed well include Gold, Small-Caps, and the S&P 500. Interestingly, Dividend Growth Stocks did decently and outperformed high yield dividend stocks by a wide margin. I leave it to you to look at the remaining asset classes in the table.
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Dividend Increases and Reinstatements
Weyerhaeuser (WY) reinstated its dividend at $0.17 per share. The company previously suspended its dividend.
ServisFirst Bancshares (SFBS) hiked the dividend 14.3% to $0.20 per share from $0.17 per share.
AMCON Distributing Company (DIT) declared a special dividend of $5.00 per share.
PC Connection (CNXN) declared a special dividend of $0.32 per share.
Glacier Bancorp (GBCI) declared a special dividend of $0.15 per share.
Dividend payments to investors in the S&P 500 rose to a new record in 2020, up 0.7 percent to $58.28 per share from the previous record set in 2019, according to S&P Global.
Coronavirus Dividend Cuts and Suspensions List
I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 501. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. The number of companies on the list continues to rise each week.
Four new companies were added to the list in the past week, which are Trinseo S.A. (TSE), Paramount Group (PGRE), Nordic American Tankers (NAT), and Retail Value (RVI).
I included six companies that I had previously missed. The six companies that I previously missed were Northern European Oil Royalty Trust (NRT), Whiting USA Trust II (WHZT), ECA Marcellus Trust I (ECMT), PermRock Royalty Trust (PRT), Rattler Midstream LP (RTLR), and TCG BDC (CGBD).
Market Indices – Market Returns in 2020
Dow Jones Industrial Averages (DJIA): 30,606 (+1.34%)
NASDAQ: 12,888 (+0.65%)
S&P 500: 3,756 (+1.43%)
The S&P 500 is trading at a price-to-earnings ratio of 37.9X and the Schiller P/E Ratio is at about 34.2X. These two metrics are up in the past three weeks. Note that the long-term means of these two ratios are 15.8X and 16.7X, respectively. I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued.
S&P 500 PE Ratio
Shiller PE Ratio
Stock Market Volatility – CBOE VIX
The CBOE VIX measuring volatility ended the year at 22.75. This is above the long-term average but still a low value. The long-term average is approximately 19 to 20. So, at this point we are just above the long-term average and trending down.
The CBOE VIX was a wild ride this year. It started the year at below the long-term averages. As the COVID-19 pandemic spread around the world and then the U.S. the VIX spiked to over 80 and then started a year long process returning almost to the long-term averages. I don’t see any spikes in the foreseeable future. The combination of more stimulus and approved vaccines has reduced volatility in the market. That is not to say some unknown future event may drive volatility higher.
Fear & Greed Index
I also track the Fear & Greed Index. The index is now in Neutral at a value of 51 for the past two weeks.
There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.
Stock Price Strength is signaling Extreme Greed. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the upper end of its range.
Market Momentum is indicating Extreme Greed. The S&P 500 is 9.05% over its 125-day average. This is on the higher end over the past two years.
Stock Price Breadth is indicating Greed as the advancing volume is 4.73% more than declining volume on the NYSE. This is coming down but still on the higher end of its range over the past two years.
Market Volatility is set at Neutral. The CBOE VIX reading of 22.75 is a neutral reading.
Put and Call Options are signaling Fear. Put option volume is lagging call option volume by 55.25%, which is lower than normal over the past 2-years.
Safe Haven Demand is in Extreme Fear. Stocks are still outperforming bonds by 1.96% over the past 20 trading days. This is close to the weakest performance over the past two years.
Junk Bond Demand is indicating Extreme Fear. Investors are accepting 2.22% yield over investment grade corporate bonds. This is historically low but has spiked over the past few weeks.
The number of weekly new unemployment claims were down with last week at 787,000. This is up 19,000 from last week’s revised numbers. After falling below 800,000 for several weeks the new unemployment claims started to trend up three weeks ago. The number went over 800,000 this week suggesting a weakening in the labor market.
For some perspective, one-year ago weekly unemployment claims were only about 226,000. Currently we are 3X – 4X the normal level. The seasonally adjusted insured unemployment rate was 3.6%.
The ten states with the highest unemployment rates were Puerto Rico (7.5), the Virgin Islands (6.8), Alaska (6.5), Nevada (6.2), New Mexico (6.2), California (5.8), Kansas (5.8), Pennsylvania (5.8), Illinois (5.7), and Hawaii (5.2).
The S&P CoreLogic Case-Shiller National Home Price Index reported an 8.4% annual gain in October. The last time that the Home Price Index matched the 8.4% growth rate was in March 2014. The housing market’s strength was broadly-based: 19 cities (Detroit excluded due to COVID reporting delays). The biggest price gain occurred in Phoenix, with a 12.7% year-over-year price increase, followed by Seattle with 11.7% and San Diego at 11.6%. COVID-19 is causing homebuyers to move to the suburbs from cities.
The US Census Bureau reported that the U.S. goods international trade deficit increased $4.4 billion to $84.8 billion in November. Exports of goods were up slightly to $127.2 billion from October’s $1.1 billion. However, imports outpaced exports increasing $5.5 billion to $212 billion.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.