2020 was most certainly a year to remember, or perhaps one that most would prefer to forget. The story of the year was obviously the emergence of the Covid-19 pandemic which resulted in 81.5 million infections worldwide, and 1.8 Million deaths. In the US alone, 19.4 million Americans were infected, and 335,000 lost their lives to the most deadly disease in a generation. The human cost of the Global Pandemic, both in terms of the lives lost and those forever changed is something that should never be forgotten. As if that weren’t enough to contend with, we all suffered through an election that was at best contentious, and at worst violent, and certainly different! Violent protests and rampant lawlessness plunged some of our major cities into anarchy. The social unrest combined with the shutdowns mandated by state Governments made some of our most vibrant cities look like bombed out ghost towns.
If you had not looked at the financial markets during this unprecedented crisis, your best guess would have been that the financial markets and the global economy would be in shambles. In fact, the economy contracted at an alarming rate as shutdowns brought business to a screeching halt. Small businesses across the country were devastated, and bankruptcy filings from small businesses to large retailers became a daily occurrence.
It wouldn’t be a stretch to conclude that 2020 would be a difficult year for investors. After gains of 30% or more in 2019, certainly all of the bad news of 2020 would be enough to motivate investors to sell stocks and wait for better days, right? Well, if there was ever a better confirmation that the stock market is a forecaster of future conditions, we are hard pressed to find one. The markets rallied again in 2020, with the S&P 500 index rising by another 15% and the technology heavy NASDAQ market jumping by an astounding 43%. The obvious winners were the “stay at home” stocks and the companies that made working in your fuzzy bunny slippers possible. We learned how to “zoom” and those of us who didn’t know about cloud computing became experts almost overnight. We converted our basements into offices and stocked up on sweatpants to hide the 20 pounds that came with being so close to the kitchen. We binge watched on Netflix after dinner simply because there was nothing else to do, and the American Spirit was alive and well as we found a way to press on through the adversity.
The gains in the shares of companies that helped us work and play from home were staggering. Amazon gained 80%, Chewy, the Internet pet food retailer grew by 211%, Paypal, who helps us pay for online purchases securely rose 113%, Nvidia who makes video display hardware for the gaming industry jumped by 120% and Fastly, who maintains cloud networks tripled. The list goes on and on in the technology group.
Conventional wisdom would suggest that the companies that developed the vaccines for Covid-19 would do well, and Moderna was the big winner, rising by 476%. JNJ, Gilead and Astra-Zeneca did well, but lagged Moderna by a big margin because of the Government crackdowns on prescription drug prices.
There were losers in obvious industries as well. Airlines, cruise lines, hotels, restaurants and smokestack manufacturing companies were hurt by the shutdowns, and many won’t make it back for a long time if at all, despite dramatic stimulus efforts by the Government.
The bigger picture to the Pandemic of 2020 is the new economic order that is emerging as we turn the corner and begin to anticipate a return to normalcy. The lessons we learned by accident during the lockdowns will serve us well if we look at the big picture. As is always the case during a transition to a new normal, the casualties of the old order give rise to the stars of the new. We all learned how to take advantage of the power of the Internet in terms of offering great variety and easy access. We ordered food for the pups and it showed up on the doorstep the next day. We ordered paper towels, computer equipment, toilet paper (at 300% markups), holiday gifts and almost everything else from the comfort of our homes and it was on the front porch within a day or two. Some of that will go back to normal when life as we know it returns, but some of the discoveries we made will change the way we think about shopping and working. The key to successfully navigating a post-pandemic market will be to figure out who the long term winners are.
Most of us enjoy going to the store for a lot of what we use, and speaking for myself, I prefer to see my groceries before I pay for them. At the same time, I really like the idea of browsing through the dog or cat food selections online and buying my paper goods and other non-perishables and having them magically appear on my porch in a few days at no additional cost. I believe that online retailers that sell everyday products that don’t require a lot of inspection will continue to do well. The companies that grew out of necessity during the lockdowns but will face competition from consumers who want to get out of the house will face reality quickly when we all get our shots.
I believe that the key to continued success in the markets in 2021 will be to once again take a step back and look at the big picture. What industries will recover, what industries are vulnerable to normalcy, and what industries will benefit from pent-up demand. I expect a relatively mild correction early in the first quarter which should allow for portfolios to be re-balanced into areas that offer the best potential in the post-pandemic economic order Consistent long-term winners in the technology group will continue to dominate while those that saw a boom from the pandemic will revert to what they were before Covid-19. The big winners in the post Covid markets will be the companies that have re-invented traditional “in-person” offerings. Binge watching older programs on TV will be replaced by lining up to rent new content, and the providers best equipped to deliver first run movies in the comfort of home will dominate as the rollout of new 5G networks make lightning Internet speeds available to the masses. Government stimulus combined with delays in infrastructure spending will bolster the top line dramatically for the “smokestack companies” that are able to fire up the production lines again, and pent-up demand for the goods and services we all missed will reward those companies who were able to survive. As it has always been in a capitalist economy, supply and demand determine the fortunes of those who are built to survive, and imbalances in those most basic forces will always create opportunity.
Happy New Year and as always, Stay the Course!