US stocks end tumultuous year at record high

Tech rally pulled Wall Street back from a brief bear market in defiance of pandemic

US stocks finished 2020 with a gain of more than 16 per cent - well above the historical average - after a technology sector-led rally pulled Wall Street back from a brief bear market to set a record high in defiance of pandemic, recession and political upheaval.

The Nasdaq Composite, dominated by tech giants such as Apple, Microsoft, Alphabet and Amazon, gained more than 44 per cent this year to record its best performance since 2009, as work and consumer spending moved online.

The S&P 500’s 16.3 per cent annual gain compared with an average 11.8 per cent over the previous decade. It has now recorded a positive year in 14 out of the first 21 years of the century.


"It was a usually upbeat year in stocks, in contrast to an unusually difficult year for all of us," said Jack Ablin, chief investment officer at Cresset Capital.


Activity in New York was muted on the last trading session of 2020 on Thursday, with many investors taking time off in the week between Christmas and New Year. The S&P 500 rose 0.6 per cent, while Nasdaq was 0.1 per cent higher.

The government debt market was similarly quiet, with the yield on the 10-year Treasury note edging lower to 0.91 per cent. That figure would have seemed implausible at the start of the year, though: it began at close to 2 per cent before the coronavirus pandemic prompted the Federal Reserve to slash policy rates and pump trillions of dollars into markets to protect the financial system and support a locked-down US economy.

"If one had told us that a pandemic would hit in February of 2020 and that markets would plummet and yields collapse, we would have agreed," said Andrew Brenner, head of international fixed income at National Alliance Securities. "If one had then added that the Fed would have come to the rescue and gone 'all in' we would still be with you.

“But then to add that this would be of the best markets for equities and risk that we have ever seen, then you would have lost us.”

With very low yields on safe assets, investors were willing to pay more for companies with the prospect of fast-growing cash flows, particularly those whose businesses made big leaps in 2020.

Zoom boost

Shares in Zoom Video Communications, for example, are up close to 400 per cent as videoconferencing replaced in-person meetings and family gatherings. Amid a scramble to upgrade technology infrastructure, semiconductor companies were also big winners. AMD shares doubled this year.

Apple, which in August became the first public company ever to be worth $2 trillion, ended the year up 81 per cent.

And then there were stocks favoured by both retail and institutional investors. The electric car maker Tesla - closing the year on a more profitable footing, with powerful growth prospects and now a place in the S&P 500 - is up about 750 per cent.

The rally broadened beyond growth stocks to more firmly embrace economically sensitive stocks in November, following the first Covid-19 vaccine breakthroughs.

As a result, the energy and banking sectors have been the best performers in the last two months of the year, adding 28 per cent and 20 per cent, respectively. Still, it was not enough to offset the losses the two sectors suffered earlier; financials lost 4.1 per cent in 2020 and energy was done 37.3 per cent.

After the worst oil crash in decades earlier this year, the US benchmark West Texas Intermediate ended 2020 at $48.52 a barrel, down 21 per cent since the start of the year but just above the price needed by many crude producers to keep turning a profit. International benchmark Brent finished the year at $51.72 a barrel, down 23 per cent since January.

The US dollar rose 0.3 per cent, as measured against a basket of currencies, but it is almost 7 per cent lower than at the start of the year, its worst annual performance since 2017.