By Liz Moyer, Christiana Sciaudone, Peter Nurse and Yasin Ebrahim
Investing.com -- The year 2020 is rapidly drawing to a close, and many can't wait to put it in their rearview mirrors.
As we look ahead to 2021, here's a look back at the turbulent year that was.
First Quarter: Optimism Gives Way to Pandemic
January: After a 30% gain in 2019, the year started out optimistically for the S&P 500. By the middle of January, stocks were already posting solid gains. Then word of a deadly virus forcing lockdowns in China trickled out, and stocks started to falter.
By the end of January, the major indexes had turned red in volatile trading as investors tried to get a sense of how badly coronavirus could damage the global economy.
The first U.S. case was recorded Jan. 20, a traveler returning from China to Washington State, and by Jan. 31, the U.S Department of Health and Human Services had declared it a public health emergency. The market fell 3% for the month from an all-time high on Jan. 17.
February: Things started to come off the rails as it became obvious coronavirus was going to be a problem beyond China.
Like January, the month started out with rising markets, reaching new highs by mid-month. But coronavirus could not stay out of the headlines.
The World Health Organization officially named it Covid-19 on Feb. 11 as cases mounted across the globe. Companies warned of disruptions that could render useless any sales and profit forecasts they had made. Analysts warned about slowing growth, and pointed to trends that showed the weakest economy in years.
There was a growing fear in the markets that the virus could not be contained, sparking a sharp sell off. By the end of February, the Dow was down 10% for the month.
March: The coronavirus crash was underway on Feb. 20 and lasted until April 7, with several giant dips along the way.
At the beginning of the month, the Federal Reserve along with other central banks around the world, cut interest rates. But stocks were in a free fall. The crash was the worst decline since 1929, coming off a decade of unprecedented growth and marking the beginning of the 2020 recession.
There were two Black Mondays this month, the 9th, when the Dow fell 7.8%, and the 16th, when the Dow shed 12.9%. In between was a Black Thursday, when the Dow lost nearly 10%.
These events happened around the time businesses and schools in the U.S. started closing down over fear about a spreading pandemic. Oil also went into a freefall, in part because of a sharp drop in demand but also because of a production power struggle between Russia and Saudi Arabia.
The Dow ended the quarter down 23%, while tech-heavy Nasdaq fell 14%. The Russell 2000, which represents smaller companies, was down nearly 31%.
Second Quarter: The Covid Doldrums
April: The second quarter began on a decidedly down note. Markets had collapsed under the weight of Covid-induced lockdowns, and nothing brought that home more than the record 6.65 million Americans who filed for unemployment on April 2. The jobless claims filed in the week ended March 28 were more than double the previous record of 3.31 million from the prior week. But a month full of records was just getting warmed up.
Oil below zero became a thing on April 20, when the price of crude futures fell into negative territory, eventually bottoming out at minus $37.63 a barrel. The reason for the never-before-seen figure: With demand basically nonexistent, there was so much oil piling up that American energy companies ran out of places to store it.
Despite it all, April ended up being the best month for stocks in three decades. The S&P 500 climbed 13% as investors speculated the economic calamity brought on by the coronavirus wouldn’t last.
May: The full picture of April’s employment carnage came into focus on the first Friday in May: 20.5 million jobs lost. It was the worst downturn in American history, tripling the unemployment rate to 14.7% -- a number not seen since the Great Depression.
Still, stocks continued to rebound from March’s bottom as investors got their first taste of a vaccine-induced rally. The S&P 500 jumped 3.15% on May 18 -- the biggest daily gain of the month -- after Moderna (NASDAQ:MRNA) told the world its experimental vaccine showed signs it could create an immune response to fend off the coronavirus. Though the results were from a small sample, it was the first sign of hope for a vaccine.
Overall, stocks gained 4.5% in May as the economy began to show signs of life and some states started to emerge from lockdowns.
In late May, George Floyd was killed by a white police officer in Minneapolis.
June: June kicked off with some of Wall Street’s attention focused away from financial markets. Protests in the wake of George Floyd’s death were roiling major U.S. cities already battered by lockdowns. And though it wasn’t market-moving, June 5th loomed large over the rest of the year as Joe Biden clinched the Democratic nomination for president.
Despite the distractions, markets continued their furious recovery, and on June 10th one of the year’s top-performers hit a milestone when Tesla (NASDAQ:TSLA) topped $1,000 for the first time. A day later, the recovery rally hit a wall. On June 11th, the S&P 500 sank almost 6% and the Dow gave back nearly 7%. While some of the selloff was attributable to profit-taking, a wave of Covid infections was taking hold in the South and threatening to slow down the nascent re-opening elsewhere. Despite the hiccup, stocks recovered enough to close out the month up overall.
Gold also made headlines as June came to a close, trading above $1,800 an ounce for the first time since 2011 and capping off its best quarter in four years. Seems investors wanted some insurance against whatever economic fallout was to come from ever-increasing Covid-cases.
Third Quarter: Tech Stocks and Dollar Diverge
July: The Covid-19 pandemic continued to spread, with India becoming the third nation, after Brazil and the United States, to surpass 1 million cases overall.
The Fed responded by extending its stimulus programs, which were due to end in September, to the end of the year, while eurozone governments agreed a 750 billion euro joint recovery fund.
Global equity markets were lifted higher by U.S. stocks, particularly the large cap technology companies. On the last day of the month, Apple (NASDAQ:AAPL) increased its market capitalization by over $95 billion, after an impressive set of quarterly earnings.
The U.S. dollar headed in the opposite direction. July was the weakest month in almost a decade for the greenback, with the dollar index dropping to its lowest level since 2018.
Precious metals, denominated in dollars, benefitted as a consequence. Gold had its best monthly performance since 2012, while silver had its best month in over 40 years.
Elsewhere, relations between the U.S. and China became more tense, with the White House targeting Chinese software companies citing national security risks. China officially closed the U.S. Consulate in Chengdu, just weeks after the U.S. announced it was closing the Chinese Consulate in Houston.
August: The annual meeting of central bankers in Wyoming’s Jackson Hole, held virtually, was where Fed Chairman Jerome Powell announced a major shift in the central bank’s approach to monetary policy. The Fed announced it would now aim for an average inflation rate of 2%, allowing it to rise modestly above that level for periods of time.
This played into the idea that the central bank would keep interest rates at very low levels for a prolonged period of time, even amid signs that the U.S. economy was recovering. The number of Americans applying for unemployment benefits fell below 1 million for the first time since the pandemic began in March.
U.S. equities climbed again in August, with the benchmark S&P 500 index reaching a new peak. Government bond yields rose, the U.S. dollar continued to decline, while this greenback weakness provided a strong tailwind for precious metals.
Elsewhere, Japan’s Prime Minister Shinzo Abe announced his resignation citing health concerns, to be later replaced by Yoshihide Suga. A massive explosion in Beirut killed over 200 people and left more than 300,000 people homeless. Russia announced that it had developed the world’s first Covid-19 vaccination, to Western skepticism.
September: There was a change in mood in September, with equity markets suffering a sharp selloff, led lower by the previously dominant tech sector.
The Dow lost more than 2% in the month, the S&P 500 dropped nearly 4%, but it was the Nasdaq which felt the brunt of the selling, falling more than 5% in September.
The big tech names, which had attracted a lot of investor cash since the early days of the pandemic, were hit hard. Apple dropped over 10%, as did Google’s parent company Alphabet (NASDAQ:GOOGL) while Tesla fell 14%, Netflix (NASDAQ:NFLX) dropped 6% and Facebook (NASDAQ:FB) closed down more than 10%.
Aside from worries about over-extended valuations, growing concerns over higher Covid-19 infection rates, more lockdowns, mainly in Europe, as well as growing political worries ahead of the presidential election in November were contributing factors.
U.S. President Donald Trump and Democrat presidential candidate Joe Biden held the first debate in Cleveland, Ohio, an occasion which was marred by shouting and interruptions, indicative of the heated political climate.
September also saw the death of Ruth Bader Ginsburg, age 87. An icon of the liberal left, Ginsburg was best known for her feminist views and battle for women’s rights. Her death created another political row over the timing of her replacement’s appointment.
Fourth Quarter: The Rough with The Smooth
October: The quarter kicked off with more questions and answers. The U.S. election and the impact of an expected second wave of Covid-19 proved to be the major bones of contention.
The bout of uncertainty left its mark, albeit temporary, on U.S. and major European stock markets in October, but Asian markets bucked the trend thanks to a strong recovery in China.
But not all risk is created equal. Bitcoin, which had already recovered by nearly 70% since its March lows, ended October at near three-year highs, injecting fresh optimism in its quest to $20,000 and beyond.
November, November, November: When history looks back on November 2020, it's likely to be recorded as the month that marked the beginning of the end of the pandemic and the Trump era.
Over three consecutive Mondays, starting Nov. 9, Pfizer (NYSE:PFE), Moderna, and AstraZeneca (NASDAQ:AZN) each released better-than-expected results from their respective vaccines trials.
Investors, however, had to weigh the promise of vaccines against the near-term economic hit from a second wave of Covid-19 that had sent most of Europe and parts of the U.S. into lockdown.
Yet, investor appetite for risk didn't waver -- it increased. With one eye on the likely roll out of vaccines, investors turned to value stocks like airlines, cruise lines and hotel operators, helping markets notch their best month in decades.
The Dow racked up an 11.8% gain for November, its best month since January 1987. The Russel 3,000 - often used a gauge for value stocks – gained 12% to its highest close ever.
December: In the final month of the quarter, history was made. The Pfizer-BioNtech was approved and began to be rolled out in the U.K., and later the U.S. Uncertainty over a peaceful transition of power was in the rearview mirror as Trump's attempts to reverse the election result failed.
By now, markets were riding vaccine-fueled optimism higher. Yet, there was some concern about the threat of a slowing recovery as the pandemic worsened by the day.
Lawmakers were prompted into action. Any hint of progress on a stimulus deal, was greeted by a wave of buying pressure that pushed all three major averages – the Dow Jones, Nasdaq and S&P 500 – to fresh record highs.
Pullbacks, meanwhile, were used to top up favorites like Tesla.
Tesla proved to be one of the story stocks of the year, surging 700%, capping off the final quarter of 2020, by winning a place on the S&P 500 after stringing together four consecutive quarters of growth.
Bitcoin also made the list of fashionable investments for the year not only for its record-setting surge above $27,000, but for appearing to have finally carved out a place in the portfolios of institutional investors.
As the curtain drew on the final quarter of the year, however, there was no festive cheer for dollar bulls. After putting up a fight against the bears in September and October, the greenback swung to more than two-year lows as the well of stimulus was topped up.
With a new year on the horizon, investors will continue to take the rough with the smooth. The Senate is up for grabs. There are dark winter months ahead as the pandemic rages on. But investors will likely do what has served them so well recently: Look through the prism of vaccine-fueled optimism and "buy the dip."