Will the Stock-Market Rebound Extend Into 2021?
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Here's your money briefing for Thursday, December 31st. I'm J.R. Whalen for The Wall Street Journal. The pandemic threw Wall Street and the U.S. economy into convulsions in 2020. And for stocks at least, a steep and sudden decline into recession last spring was followed by a surprisingly strong rebound.
The Dow Jones hit 50 all-time highs this year. 50 during a pandemic.
How did the 2020 pandemic trigger the stock-market crash in March?
This is not something you expect. This is during a time when some companies have no revenues because they've literally had to shut down their businesses.
Coming up, Melody Hobson, co-CEO and president of Aerial Investments, will discuss the year in markets, what 2020 meant for investors, both professionals and those just dabbling in it, as well as anyone with a 401k and what to expect in 2021. That's after the break.
2020 began with the longest bull market in history in full force. Then the pandemic hit and changed everything. Anyone owning stock, either directly or through a retirement fund, has been on a wild ride this year. But some companies and sectors have emerged as bigger winners than others. To sort through this, let's bring in Melody Hobson. She's co-CEO and president of Ariel Investments and joins me now. Melody, thanks so much for being here.
Thanks for having me.
So let's talk about how the pandemic affected investors this year. And let's start at the beginning. Take us back to March when the markets dropped so suddenly.
Well, we had this forced closure of global economies, including the U.S. The date doomsday was March 13th. Everything shut down on that date. And at that point, the stock market started to drop like a lead balloon. We saw the S&P 500 fall 20% just in the bat of an eye. Smaller companies went down 30%. We had the biggest drop in the stock market from a bull to a bear market, the fastest one in US history. It happened in just 20 days. Now to put that into some context, the bear market that occurred during the financial crisis back in 2008 took 19 months. So 20 days, the market went from a bull market to a bear market.
But then we saw a stock market gain of more than 60% into the fourth quarter. What drove the turnaround?
The turnaround has really been driven by the fact that the stock market anticipates the future. And starting in not too shortly after this dramatic drop, starting in April, the stock market starts to see beyond the wreckage, the panic, the indiscriminate selling, and start to look towards a post- vaccine economy. And as that started to heat up, more and more conversations about a vaccine coming, the market has gotten richer and richer over time. And we've seen this remarkable recovery. So we had this brutal first quarter that was really started. It's really started to collapse at the beginning of March. And then we started to see this unbelievably strong second quarter, which no one anticipated. And the market has been building on that since then.
And then November, we had the market, the Dow Jones crossed the 30,000 mark, which no one expected.
Why do you think some companies' share prices rebounded faster than others?
One of the things that has been happening is the real leaders in this market have been the growth stocks. These are the high-octane stocks that everyone wants to own. They've been driven by the circumstance. So not only do they have great companies, not only are these great companies great businesses, but these great businesses have been turbocharged during the pandemic. More specifically, because we're locked in, we desperately need their services. So think Amazon, think Apple, and the like. And interestingly, these stocks, which are called the FAANG stocks, plus Microsoft, and the FAANG is representative of the initials of the companies, Facebook, Amazon, Apple, and the like, Google, which is now called Alphabet, plus Microsoft, these stocks have been dominating the market.
So in some ways, we have the best and we have the rest. And they've been dominating because their services are essential to us, especially right now. And they've also been dominating in terms of their share prices because interest rates are so low.
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