• Bernhardt Wealth Management

Year-End Recap, 2020: What a Year!

As we mentioned in our previous blog article, this is the season for looking back over the past year and also thinking about the year that lies ahead. With only four trading sessions left in the calendar year, 2020 is just about in the history books. Most of us won’t be sorry to see the end of what has been a uniquely challenging year on many fronts.

From an investment and financial perspective, the thing that many of us will probably remember most vividly about 2020 was its unprecedented and dramatic swings in the stock market. From what we can discover, this is the only year in history when the Dow Jones Industrial Average (DJIA) has plunged from a record high (29,551 on February 12, 2020) to a loss of more than 30% (19,174 on March 20, 2020) and climbed back to a new all-time high (29,824 on December 1, 2020)—all in the course of a single calendar year. At its most recent close on December 24, the DJIA stood at 30,199, putting the index at a gain of 1,331 points (+4.6%) for the year. Even more dramatically, the S&P 500 stood at 3,703 at its most recent close, up 445 points from its reading at the beginning of the year.

Assuming no dramatic changes in the last few sessions of 2020, we could characterize this as a pretty good year for equity returns. But during the tumultuous days of February and March, with the markets seemingly in a freefall, how many of us would have bet that the year would end this way? This points to the importance of two things we frequently tell our clients: 1) avoid trying to predict what the markets will do during any given period, and 2) avoid basing investment decisions on emotional responses to current market conditions. After all, investors with well-diversified portfolios who remained disciplined, patient, and committed to the long-term view generally did well, even during one of the most volatile years in market history. On the other hand, those who succumbed to fear amid the drop in prices and sold equities missed an opportunity to participate in one of the most dramatic price recoveries we have ever seen.

As we look ahead to 2021, there are, as in most years, reasons for both caution and optimism. On the economic front, unemployment remains problematic: 6.7% at its most recent measure, which is almost 3 points higher than the 4% rate before the onset of the pandemic. Numerous industry sectors have fared poorly during the pandemic, including cinemas and other entertainment-based businesses, cruise lines and other travel-related entities, large swathes of the food services industry, and much of the retail sector, especially small businesses. With the second round of economic stimulus in limbo, awaiting the president’s signature, the economy remains vulnerable.

On the other hand, unemployment is down dramatically from its 14% peak during the economic shutdown in April. Certain industry sectors have performed strongly amid the pandemic disruptions, including much of the tech sector (especially Facebook, Apple, Amazon, Netflix, and Google, the “FAANG” stocks), insurance, real estate, and healthcare. As mentioned above, properly diversified portfolios generally performed well during 2020, and with the opportunities for tax-loss harvesting presented by the price drop in the spring along with disciplined rebalancing during the subsequent rally, many portfolios are well positioned for further gains in 2021.

One constant amid the constantly shifting financial and investment landscape, of course, is our commitment to our clients’ best interest, which supersedes every other consideration. We look forward to continuing this commitment in the coming year. In 2021 and thereafter, we are eager to continue meeting the highest standards of fiduciary care for our clients as we travel alongside them on the road toward their most cherished goals.

Buen Camino!

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