Annual Market Snapshot 2020
As with almost every aspect of 2020, the pandemic impacted the stock market throughout the year. Investors began hearing of the possible spread of the virus in January, creating uncertainty and trepidation. By the end of February, investors sold more equities than they purchased, driving values down. By the end of March, the spread of COVID-19 throughout much of the world and within the United States prompted a major market sell-off. The first quarter saw each of the benchmark indexes fall far below its 2019 closing value. Fiscal stimulus measures in April, coupled with value buying, drove stocks to their best month since 1987. The possibility of a COVID-19 vaccine, a brief slowdown in the number of reported virus cases, and the onset of the summer season provided enough encouragement for investors to stay in the market. Throughout the rest of the year, despite a resurgence in the number of reported COVID-19 cases and deaths, an historic number of unemployment claims, delays in the long-awaited vaccine, and additional stimulus, investors saw hope that the economy would turn the corner and that the virus would be contained. Those factors, coupled with the low interest-rate environment, made stocks a viable option.
On the last day of the year, the Dow and the S&P 500 ended at all-time highs. In fact, the fourth quarter was robust for stocks, with each of the major indexes posting double-digit gains, headed by the small caps of the Russell 2000, which surged to a gain of 31.3% over the prior quarter. Despite the turmoil and early-year losses, all of the benchmark indexes listed here closed 2020 well ahead of their 2019 closing marks. The tech stocks of the Nasdaq, which gained more than 43.0%, led the way, followed by the Russell 2000, the S&P 500, the Dow, and the Global Dow.
U.S. Treasury yields generally trended lower in 2020, never reaching their 2019 year-end high of 1.91%. Muted inflation and low interest rates drove bond prices up and yields down. Ten-year Treasuries hit an all-time low of 0.3% in March as investors ran from stocks in favor of bonds. The impact of COVID-19 kept investors on edge as the economy drifted toward a recession. As parts of the economy began to slowly recover, investors again moved toward stocks and away from bonds, pushing yields higher. The yield on 10-year Treasuries ultimately closed 2020 at 0.91%, down 100 basis points from where it began the year.
Oil prices began 2020 at $63.05 per barrel, only to slump throughout the rest of the year. Oil demand declined drastically following COVID-19-related lockdowns and travel restrictions. An all-out oil price war in March and part of April drove prices below $20.00 per barrel. An agreement in mid-April to cut petroleum output helped stabilize prices. For the year, crude oil prices averaged about $39.00 per barrel, ultimately closing at $48.44 per barrel on December 31.
The Federal Open Market Committee lowered interest rates dramatically in 2020 while instituting new and drastic measures in response to the economic turmoil caused by COVID-19. The year began with the target range for the federal funds rate at 1.50%-1.75%. However, due to the negative effects of COVID-19, the Federal Reserve cut the federal funds rate by 150 basis points to a range of 0.00%-0.25% in March. In addition, the Fed instituted a policy of unlimited bond buying, including the purchase of corporate bonds; $300 billion in new financing; and the establishment of two new facilities, the Term Asset-Backed Securities Loan Facility to enable the issuance of asset-backed securities, and a Main Street Business Lending Program to support lending to eligible small and medium-sized businesses. The target range for the federal funds rate stayed at 0.00%-0.25% through December and will likely remain there for most of 2021. The Fed also committed to continue increasing its holdings of Treasuries and mortgage-backed securities.
The United States Dollar Index (DX-Y.NYB), which measures the U.S. dollar against the currencies of several other countries, hit a high of $102.99 in March. It closed at $89.91 on December 31, having fallen nearly 9.0% since the beginning of the year. The huge expansion of the national debt coupled with the continued impact of COVID-19 could keep the dollar from gaining upward momentum for quite some time.
Gold prices began the year at $1,524.50 and closed 2020 at $1,901.70, an increase of nearly 25.0%. During the year, gold fell to $1,450.90 in March, only to surge to $2,089.20 in mid-August. Investors turned to gold amid the growing uncertainty of COVID-19. A depreciating dollar and receding bond yields added to the appeal of gold for investors.