Market Review - Quarter 4, 2020
The year finished with double-digit returns for the fourth quarter as markets rallied on the positive news surrounding Covid-19 vaccines. This brought all the major equity markets into positive territory for the year with emerging markets outrunning the US markets in the final inning.
Source: Zephyr Style Advisor
The fourth quarter saw some major reversals with small-caps outpacing large-caps and the strong six FANAMA (Facebook, Amazon, Netflix, Apple, Microsoft, Alphabet (Google)) trailed the remaining stocks in the S&P 500 as market leadership broadened. Small-caps returned 31.3% for the final quarter of the year, besting large-caps by almost 23 percentage points.¹ Diving into the S&P 500 for the quarter, FANAMA saw a return of 9.9% for the quarter, while the other 494 stocks returned 46.6% contributing over 80% to the return of the S&P 500.²
All sectors were in positive territory for the quarter with Energy and Financials leading the pack with returns above 20%. However, the fourth quarter return was still not enough to lift the year-to-date returns for these two sectors into positive territory for the year. For the quarter, the bond proxy sectors of utilities and US real estate, along with consumer staples saw the weakest returns, all below 7%.³
With the stronger returns from energy and financials, US value and dividend-focused indices saw some improvement in returns and outperformed the growth indices across all market capitalizations. Similar to the small-cap index, the reversal lifted value returns for the full year into positive territory but they still trailed growth indices by 17-30 percentage points in 2020.
Dollar weakness helped lift returns internationally for the quarter with greatest strength seen in energy rich countries. Brazil and Russia saw returns of 37.1% and 22% respectively for the quarter. For the full year of 2020, China remained the standout with a return of 29.7% being among one of the first countries to emerge from the pandemic.⁵
As investors sought to add risk to their portfolios on brighter news and a post-pandemic outlook, the credit sectors led the US bond markets in the final quarter of the year. High-yield corporates returned 6.5% lifting year-to-date returns to 7.1%, while investment-grade corporates returned 3.0% for the quarter and 9.9% for the year. While long-term Treasuries had the strongest returns for the year at 17.7%, they were the weakest-performing sector in the final quarter with a return of -3.0%.⁶
Commodities rally continued into the final quarter with a return of 10.2%, but trailed equities, as did US REITS at 8.2%. Within commodities, grains and industrial metals saw strength as investors looked to an economic recovery while gold was the only sector that saw a negative return. There were also large reversals within REIT sectors as hotels and malls rallied strongly after suffering for most of 2020.⁷
1 - Zephyr StyleAdvisor
2 - FactSet
3 - Zephyr StyleAdvisor
4 - Ibid
5 - FactSet, MSCI Indices
6 - FactSet, Bloomberg Indices
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