Investment Review for Fourth Quarter 2020

by John Gullo, MBA, CFA, CFP®, CIMA® Jan 17, 2021 Financial Planning, Investment Consulting

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A Challenging Year. 

In 2020, 83 million people contracted COVID-19 across the globe. Sadly, 1.8 million lives were lost, 350,000 of which were American. Businesses were temporarily shut down for various periods of time, unemployment soared, and a general level of unease seemed to surround the planet.

To help combat rising concerns and a potential global depression, governments released trillions of dollars of fiscal stimulus to provide a lifeline for businesses and households on the edge of financial collapse. In addition, the major central banks of the world also provided trillions of dollars of additional monetary stimulus which provided liquidity and help to stem the sea of red in the stock market. 

As a result of massive stimulus efforts, improved testing and treatment methods for the virus, and successful vaccine developments, global stocks shrugged off early year losses and posted strong gains among many asset classes. The most significant returns came from U.S. large company stocks and emerging market stocks which each returned over 18% for the year. Unfortunately, significant challenges remain in the real estate and infrastructure segments of the economy and those asset classes ended the year with losses of 11.1% and 9.5% respectively.

Major asset class returns.

  Q4 2020 2020
Core Bonds – Taxable 0.8% 7.4%
Core Bonds – Municipal 1.3% 5.1%
Global Stocks (as a whole) 14.7% 16.3%
U.S. Large Stocks 12.2% 18.4%
U.S. Mid Stocks 24.4% 13.7%
U.S. Small Stocks 31.3% 11.3%
Foreign Developed Stocks 16.1% 7.8%
Emerging Market Stocks 19.7% 18.3%
Commodities 10.2% -3.1%
Real Estate 13.6% -11.1%


Debt, Debt, and More Debt. 

Unfortunately, significant borrowing was required to fund the massive fiscal stimulus. U.S. government debt was less than $6 trillion in the early part of this century. In just 20 years it has more than quadrupled. At year end, federal debt exceeded $27.7 trillion. That number jumps to $28.6 trillion when you add in the additional $900 billion in stimulus recently approved. Should interest rates normalize in the future, interest payments on the outstanding debt will cost taxpayers dearly and will likely be a significant detraction from future economic growth.

Economic vs. Financial Market Recovery. 

Prior to the recession, the U.S. economy had been growing by roughly $50 billion per quarter over the past few years. As large portions of the economy shut down in the first half of 2020, economic output fell dramatically. Fortunately, with trillions of stimulus dollars flowing into the U.S. economy and businesses finding ways to adapt and evolve, economic activity recovered in the third quarter. Despite this dramatic recovery, however, economic activity remains behind 2019 levels. This is a stark contrast to the domestic stock market which is well above 2019 levels.

U.S. Dollar Decline. 

With trillions of dollars pouring out of Washington DC and an abundance of stimulus from the Federal Reserve, the U.S. dollar began to show weakness during the second half of 2020. When looking at our major trading partners the euro, Chinese yuan, Canadian dollar, Japanese yen, Korean won, and British pound all rose during the year. In fact, of our top trading partners, only the Mexican peso and Indian rupee fell vs. the U.S. dollar.

As a reminder, a falling dollar will make purchases of foreign goods more expensive for consumers. It will, however, help businesses that sell goods overseas and investors who hold foreign stock.

Retail, Housing, and Manufacturing. 

While 2020’s economic activity lagged behind that of 2019, recent trends have been good. Consumer spending rebounded quickly and has reached new highs. The housing market is strong, in part due to urban residents leaving cities and building new homes in the suburbs. Lastly, while manufacturing has not been a growth engine for the economy for quite some time, production has rebounded and is likely to rebound to pre-recession levels in the first half of 2021.

Unemployment Lifeline. 

Earlier in 2020, millions of Americans filed unemployment claims when temporary business closures eliminated their jobs. As restrictions eased and government assistance began to flow to small businesses, fewer layoffs occurred. While lower, the number of additional Americans filing for unemployment each week remains at four times the typical level. To help assist those out of work, Congress has provided additional funding to help make ends meet. Although less than earlier allocations, the bill signed into law in late December will provide an additional $300 per week in Federal unemployment benefits through March 14th.


This publication contains general information that is not suitable for everyone. All material presented is compiled from sources believed to be reliable. Accuracy, however, cannot be guaranteed. Further, the information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this publication will come to pass. Past performance may not be indicative of future results. All investments contain risk and may lose value. © January 2021 JSG