As 2020 came to a close, the stock market ended the year as it began: in a bull market, with major market benchmarks rising to record all-time highs. While this would be an exciting way to end any year, it is remarkable that a year as eventful as 2020--marred with the worst global pandemic in a century, foreign and domestic political clashes, the shortest bear market on record--could end on such a high note.
The S&P 500 Index
There are many years that investors can easily forget, especially during times of growth, but 2020 will surely be a year that defines many aspects of the stock market for many years to come.
When traders entered 2020, one of the only worries the stock market had was the articles of impeachment raised against President Donald Trump and tensions brewing between the United States and Iran. However, the political uncertainty was nearly forgotten come February, when coronavirus became the primary focus behind stock market moves.
Throughout late-February until early-April, market benchmarks crashed into a short-lived bear market, marked by high volatility and strong sell offs of cyclicals in favor of tech names. Come April, the stock market began to enter a state of growth following the passage of Congressional stimulus aid and the Federal Reserve taking swift and aggressive actions to stabilize the economy.
Economy vs Wall Street
While the stock market began to rebound from in March lows, the U.S. economy takes lower to stabilize and recover from the devastating impact of the coronavirus pandemic. The National Bureau of Economic Research officially determined that the U.S. economy had entered into a period of recession beginning in February, and still lingers into 2021.
It may seem unusual, but market performance is not always equal to economic performance. For many investors, the pandemic's economic crash and subsequent recession is considered an one-time event that affects the economy, rather than a total economic downturn.
Yet, the economy still has multiple roadblocks on the way to recovery. Many of the hardships caused by the pandemic, like inability to pay rent or long-term unemployment, have been postponed by additional Congressional stimulus, meaning that the full extent the the current recession has yet to be determined.
For now, economic recovery is tied to the ongoing coronavirus pandemic.
The Work-from-Home, Shop-from-Home Consumer
The coronavirus pandemic fundamentally changed consumers, as life shifted more towards indoors and the recession made many cut back on excess spending. What started as Trump administration issued guidelines of "15 Days to Slow the Spread," the stay-at-home aspect of 2020 has defined most of the year, and consumer habits reflected that.
Consumers began to spend more online and have things they would normally shop for in person, like groceries, delivered to their front door. Habits shifted from picking up coffee on the way to work or going out to restaurants to subscribing to an at-home fitness service and binging series on Netflix
With the longer term shift to remote working and ultra-low interest rates, consumers also moved away from city apartments and into single-family homes. From there, consumer focused their extra money saved from less traveling and expensive entertainment towards home improvement markets like appliances and furniture.
This shift in consumer habits is expected to continue well into 2021, as the coronavirus pandemic continues. However, the rollout of multiple effective vaccines will likely lead to another habit shift in the second half of the year.
Robinhood Day Trader Revolution
The increased market volatility and zero commission fees across all trading platforms created an environment that welcomed increased activity and first-time investors. Many younger traders also invested with fear of prolonged economic recession and lower lifetime income expectations brought by the pandemic's fallout, making investment and growth opportunities more attractive.
When the stock market crashed earlier this year, younger investors turned to Robinhood to make bets on what industries--and often individual companies--were going to benefit from pandemic's stay-at-home orders, with the technology sector being the clear winner of the coronavirus market. This lead to an unequal stock market where growth stocks were outperforming value stocks by very large margins.
As the pandemic's situation changes with widespread vaccine distribution and outlooks start to choose recovery plays, traders have begun to favor more value stocks over growth stocks for more long-term investments.
This new wave of investors are not expected to leave financial markets anytime soon, and zero commission trading may lead to a new way to market flows in the future.