CBIZ : 2020 Fourth Quarter Market Recap

Anna Rathbun, Chief Investment Officer

When the COVID-19 pandemic began in early 2020, the world speculated on how quickly a vaccine may be developed. The final quarter of 2020 can be divided into 'pre-vaccine' and 'post-vaccine' periods, during which our collective situation changed from crisis management to vaccination management. The markets jumped upon the vaccine news announced in early November, first from Pfizer/BioNTech and then from Moderna. One could almost hear a global sigh of relief or the sound of the COVID-19 burden being lifted off of the shoulders of humanity. And here we are with vaccines in hand, starting out the New Year and ready to put the pandemic behind us. While this is great news, it takes considerable amount of time and coordination to get the vaccines to the world population. And the time needed may turn out to be longer than the duration for the development of the vaccine. Until then, we need to reconcile the current struggle to contain the infections and the visions of an immunized future. This is the cognitive dissonance of waiting to be vaccinated, as we grapple with the push and pull of discouragement and hope.

Highlights

• COVID-19-challenged areas of the market, such as domestic small caps, and value-oriented stocks rallied during the last two months of the year.
• The focus on the pandemic should not take away from the two notable geopolitical resolutions that took place during the quarter: the U.S. Presidential election results and an agreement on the terms of Brexit. These significant world events were quickly priced into the market and left behind, as the main and immediate focus of the economic fate remained on the COVID-19 vaccines.
• In the fixed income markets, the vaccine news translated as hope for better economic growth and perhaps even some inflation. The U.S. Treasury curve steepened considerably throughout the fourth quarter reflecting this optimism.
• The confirmation of a Blue Wave in Washington has boosted the 10-year yield above 1%, the threshold that we remained below during most of 2020.
• Bond market performance for 2020 disguises the tumultuous movements in yields and spreads we saw during the year.
• As we look into 2021, the upward pressure on the Treasury curve and tight credit spreads keep expectations for duration-sensitive investments and credit instruments in check.
• The global vaccination timeline may be longer than expected, and in the financial markets, this waiting game is reflected in high equity market valuations.
  
  

Looking Ahead

Currently, we are surrounded by a strange mix of hope and skepticism. Of course, the vaccine puts better definition around the silhouette of recovery, but the world where everyone is vaccinated cannot come soon enough. While we wait, it is important to pace our optimism and to set the right expectations. For the economy, we can accept the base case scenario of a continued vaccination effort, while understanding that we may not execute in the most effective manner and that it may take longer in other parts of the world. For the markets, it is important to remember that the current valuations may not last forever, and that it takes great patience in waiting for the fundamentals to catch up. Such is the uncertainty of this waiting period, having faith that we will be okay but not knowing exactly when.

More Information

For more information on the 2020 Fourth Quarter Market Recap, please contact CBIZ Investment Advisory Services.

The information included in this update is provided for informational purposes only and should not be construed as investment advice. The views expressed are those of the author based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services and/or CBIZ Retirement Plan Services disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update.