Last year was anything but boring. We saw a global pandemic, the first bear market since 2008, the end of a decade-long economic expansion—and the sharpest stock market downturn on record. The Fed gave us two emergency rate cuts. Congress gave us the largest fiscal stimulus package in U.S. history. There was a nationwide call to address racial inequality. And we are still not done with one of the most contentious presidential elections in recent memory. 

All that happened in 12 months and the stock market still managed to end December at record highs. So, what valuable lessons did the past 12 months teach us that we can take into 2021?

In his monthly blog, E*Trade’s Managing Director of Investment Strategy Mike Loewengart had the following outlook:

Nasdaq: Queen of the “Stay-At-Home Ball”
Despite the vicious wave of Covid infections, stocks pressed higher in December as vaccines rolled out across the country and Congress passed the long-awaited stimulus 2.0 package, Loewngart said.

“Small caps dominated in the fourth quarter, with the Russell 2000 gaining 31% from October–December to finish the year up 20%—the second-highest annual return of the major indexes. But it didn’t come close to the Nasdaq’s remarkable 45% rally, which cemented its title as the belle of the ‘stay-at-home’ ball,” he said.

Technology held on to its leadership position, despite losing some momentum later in the year, claiming the top spot among the S&P 500® sectors for two years in a row. “While energy and financials—two of the weakest sectors on the year—showed relative strength in the final quarter of 2020, it wasn’t enough to match the pace of growth many high-flying tech names experienced amid the pandemic,” Loewengart reported.

International equities
International equities also closed out the year with solid gains. Emerging markets outperformed developed markets both for the month and the year. “COVID cases have declined in many emerging markets, and China, the original epicenter, has made steady progress in its economic recovery,” the manager said.

Europe has had a tougher time bouncing back. Pockets of the continent have come under strict lockdown restrictions again, and some countries have imposed travel bans after a new fast-spreading strain of Covid was identified in the U.K. and beyond 

Fixed income
While bond returns were muted in December, it was a strong year for fixed income assets across the board. “The bellwether BBgBarc US Aggregate Bond index returned 7.5%. Longer-term Treasuries led the way, returning nearly 18%—although much of that was achieved early last year, when the onset of the pandemic spurred a flight to safe-haven assets. Investment grade corporate bonds also posted a strong performance, up roughly 10%,” Loewengart said.

The yield on the 10-year T-note, which started 2020 at 1.9%, dipped to a record low 0.3% in early March and ended the year at 0.9%, he added.

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