A Look Back at 2020 - What Went Right
Getting a handle on things in a complex world is never easy. In 2020 it was darn near impossible.
Thankfully, the Nicollet Investment Management approach to investing is about charting a course and sticking to the plan. That served us very well in the last year as we helped our clients move forward in achieving their goals and objectives.
It wasn’t easy.
A once in a lifetime pandemic increased volatility and fear for many. To some that reacted, my condolences. Chances are good that those reactions were costly.
The Humpty Dumpty market took a great fall in the early part of the year. Putting the pieces back together again gave Humpty an entirely new look.
The landscape changed, but before we can look forward, I thought it might be informative to look back at what went right and what went wrong (in our opinion) during 2020. In so doing, we should have a clearer picture of the sailing that is to come.
The following are our three rights. Next week, I’ll put together three wrongs.
Robinhood Took from the Rich and Gave to the Poor
Well, not entirely, but those traders from the Robinhood platform made quite an impact on the markets in 2020. The no-commission trading site harkened back to the days of the dot-com boom.
Investors with spare cash of any amount could now easily participate in the market cost-effectively. There were no shortages of hyped ideas for them to trade during the year.
Say what you will about the financial knowledge of this new core group of investors; they were a determined bunch. Once on a stock, they bought and bought and bought.
Exactly how much daily trading volume we can attribute to these folks is unknown, but suffice it to say they had an impact.
By the end of the year, the financial press and some professionals got on board. If you can’t beat them, join them, I guess.
The takeaway for next year is that Robinhood and their favorite trades will work until they don’t, but looking back, it seems whatever Robinhood touched turned to gold.
Coordination of Fiscal and Monetary Policy
Who says we are a divided nation? When the two largest drivers of the market - the Federal Reserve and the Government - are in lockstep, investors can’t lose.
When the pandemic hit and volatility spiked, these two market behemoths took over. Forget about a shotgun approach. In 2020, it was all about the bazooka.
Already on offense to fight deflation after the yield curve inversion in 2019, the central bank brought back securities buying in large amounts while cutting interest rates to zero.
At the same time, Congress passed, and the President signed the CAREs Act that provided direct stimulus checks to individuals. This spending helped propel the economy to record growth in the third quarter of the year and stabilize the market.
The tailwinds of coordinated fiscal and monetary policy helped push the market to record highs by the end of 2020.
What investors will be watching for next is the sustainability of that coordinated policy. Also, keep an eye on longer-term consequences related to increased debt issuance.
Clear New Trends Attract Investors
Out of any crisis comes opportunity. The pandemic definitely created both winners and losers. Some of those winners made enormous gains for investors as the drama unfolded.
Specifically, I am talking about anything related to social distancing. Front and center was the technology that helped us survive lockdowns and quarantine. Anything to help productivity during this crisis saw considerable gains in the market.
Zoom is the obvious winner here, but there were others too. From a retail perspective, online shopping trends exploded. The leader in that space is Amazon.
According to financial stock quoting services, the king of consumer delivery now has a market cap of $1.6 trillion.
Some of the pandemic trends will not be friendly to other sectors. Flexible workspaces have commercial real estate in a panic. We’ve gone from the shared office space to the no office space in record time.
Some of the pandemic trends will prove to be fleeting, but some will be permanent. Ignoring these trends may be a mistake from an investing standpoint.
If you are interested in discussing our “right”s of 2020 and how they might impact your portfolio, I would enjoy chatting with you. Next week I’ll zoom in on three wrongs of 2020.