With election jitters fading and the kick-off of vaccine rollouts, enthusiasm for stocks continued unabated in December, capping a dramatic year for capital markets. U.S. stocks, once down over 30%, finished 2020 up over 20%. Small caps, battered in the downturn, roughly doubled from the bottom through the end of the year.
In a turbulent year, sticking with a diversified strategy has once again proven to be a successful approach. Those who reacted emotionally or attempted to time the market typically fared poorly. Speculators and stock pickers had mixed results. Some are emboldened by gains in high momentum stocks. We urge caution for those using leverage and those concentrated in individual companies or sectors.
Moving into the New Year
As 2021 gets underway, an apparent surprise sweep of Georgia’s two Senate runoff elections by Democrats completes a mild version of the Blue Wave some anticipated prior to the election. Early market reaction signaled support for the “reflation” trade, with economically sensitive sectors responding positively. With increased possibility of more stimulus and more debt, Treasuries retreated and the 10 Year Treasury yield rose above 1% for the first time since March.