The books are officially closed on 2020, a year in which the COVID-19 pandemic generated tremendous volatility across many sectors. The S&P 500 returned 16.3% for the year, and 11.7% in just the fourth quarter. Note that all returns discussed here are total returns, which include the effect of dividends paid during the year.
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The energy sector began to get battered in February following a price war between Saudi Arabia and Russia. The overall stock market plunged from February to March, as COVID-19 gained a foothold in the U.S. Every sector swooned during this time frame, with a decline of more than 30% in both the S&P 500 and the Dow Jones Industrial Average.
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Some years there is an energy story so big, there’s no question it belongs at the top of the list. The Deepwater Horizon oil spill in 2010. The Fukushima Daiichi nuclear disaster in 2011.
In 2020, that story was the emergence and subsequent consequences of the COVID-19 pandemic. Let’s take a closer look at what it all means for investors.
1. COVID-19 pandemic wreaks havoc on the energy sector.
Many of the big energy stories of 2020 are directly attributable to the fallout from the COVID-19 pandemic. Oil demand was crushed beginning in the first quarter as stay-at-home orders were implemented. Airline travel plummeted. Demand for gasoline plunged to a 50-year low. Ethanol demand for gasoline blending fell sharply.
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It’s Christmas Eve, a good time to discuss angels (of the financial variety).
Environmental, social and governance (ESG) factors are gaining prominence in the strategic decisions of Wall Street and corporations. Not because financial and corporate leaders have suddenly become saints, but because ESG is good for the bottom line.
Consider
BlackRock (NYSE: BLK), the world’s largest asset manager. With more than $7.4 trillion in assets under management, BlackRock recently launched several new exchange-traded funds (ETFs) that track ESG-focused companies. No one ever accused the top managers at BlackRock of being sentimental bleeding hearts.
During this holiday-shortened trading day, I want to step back from the market’s gyrations to examine ESG and how it’s transforming the investment world. Think of this phenomenon as “The Halo Effect.”
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This week, the first doses of a COVID-19 vaccine are being distributed throughout the United States. Among the first recipients are doctors, nurses, and other frontline medical workers. That’s great news for them, but the rest of us may have to wait while.
Below, I’ll explain how confusion over that process could put a lot of money in your pockets. But first, you need to understand the circumstances that have created this rare opportunity to score a huge gain in a short period of time.
Not among the group of initial vaccine recipients are cruise ship passengers. At least, not for that specific reason. I assume there are plenty of medical workers that will want to go on a cruise when this mess is finally over. They, too, may have to wait a while.
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The stock market is trading at record levels but in many ways it’s been a very rough year in 2020. The good news is that the prospect of COVID-19 vaccines plus unprecedented monetary and likely strong federal stimulus to keep the economy afloat until the vaccines get to work should be a tailwind for stocks.
The bad news is that the seeds have been sown for a likely long-term top in stocks, albeit one on the fairly distant horizon.
Sometime in 2021 the world will likely be in a synchronous economic upturn. The market, as is its nature, isn’t waiting to see the recovery. Markets are forward looking and they anticipate events. Hence the recent gains in stocks and the outlook for more gains ahead.