The Year of Living Dangerously
We will all remember 2020 for different things.
First and worst, we will remember 2020 as the year when COVID-19 spread throughout the world and killed nearly 2 million people globally, including nearly 400,000 Americans. Depending upon how you count, that is the greatest loss of American life ever, except for the Civil War. The year also experienced a number of other tragic events that sparked calls for social justice solutions to create positive and lasting changes.
Happier 2020 memories will include more time with family, friends and relatives, those stricken by COVID-19 who thankfully survived and recovered, renewed appreciation for our essential workers, discovering new creative outlets and ways to binge watch TV, and saying goodbye to that dreaded commute. Along with, and mostly due to COVID-19, 2020 produced a long list of economic anomalies, including:
- GDP swings: the largest single quarter drop in US history (-31.4% in Q2) immediately followed by the largest single quarter gain (+33.4% in Q3)
- Unemployment swings: unemployment rising from 4.4% to 14.7% in one month, and then falling back to 6.7% over the next 7 months
- Market swings: the fastest decline into a bear market from an all-time high for the US stock market, followed by one of the greatest bull markets, and quickest recoveries, to new highs
- Market firsts: oil fell to the point that investors were briefly paid $17 to accept delivery of a 55-gallon barrel; and Apple’s market cap crossed $2.25 trillion, exceeding the entire value of the UK index FTSE 100
- Unprecedented growth areas:
- Tesla grew in value to $670 billion, (and depending upon the day, it equals the approximate value of BMW, Mercedes, Volkswagen, Fiat/Chrysler, Ferrari, Honda, Toyota, Subaru, Mazda, Mitsubishi, Ford, and General Motors combined)
- FANGAM (Facebook, Amazon, Netflix, Google, Apple and Microsoft) stocks now have a larger market cap than every individual country except China
- Zoom gained 400%, Pinterest 250%, Overstock 600%, Moderna 400%, Plug Power 1000%, and Workhorse 550%, to name a few examples
- Anticipated challenges: businesses that interacted directly with consumers had a very difficult year. Bankruptcies mounted particularly in retail, restaurants and automotive, ensnaring well-known brands: Brooks Brothers, Neiman Marcus, and JC Penny; California Pizza Kitchen, Ruby Tuesday, and Sizzler; Dollar Thrifty Automotive Group, Advantage Rent a Car, and Hertz
- Contradictory outcomes: the US experienced record savings rates, record retail sales, but also record unemployment – and all at roughly the same time
- Modern Monetary Theory (MMT) rushed in: global governments, including the US, tried to save their economies by printing and spending more money than ever before, and with the US budget deficit currently around -20% of GDP we remain hopeful that MMT will prove a temporary situation and soon the economy will be able to stand on its own two feet
- Medical miracles: the world quickly developed and began to administer at least three COVID-19 vaccines, providing hope that the platforms used to create these vaccines will enable even more rapid vaccine development for the next global scourge
For us, the key takeaways from these wildly disparate events are that some were predictable (i.e., spikes in unemployment and bankruptcies resulting from a recession), but many more were not. Unpredictable outcomes keep us humble while reminding us of the difficulty of consistently outsmarting the markets.
This is an excerpt from a longer commentary. Please Download the PDF to read the entire 4Q2020 CIO Commentary.