Why did stocks rise in 2020 despite a lot of negative news?

Why did stocks rise in 2020 despite a lot of negative news?

1/15/2021

Last year, clients awaited their statements with great trepidation. One client even told me, "I only want to hear good news, if you don't have it, I'll see you when it's over..." :-D I assured her that there really was nothing to worry about.


Sure, in March 2020 we saw the biggest drop in the stock markets since the collapse of Lehman Brothers in 2008.  But what was also remarkable was the speed with which the markets bounced back to their previous highs. It took more than a year from the rebound from the bottom of 2009 for the stock indexes to return to their original values. In 2020, it was just months, as seen in the chart below. The daily declines and increases were also record highs, which were exceptionally close to double-digit values.

But how is it possible that even though 2020 was full of bad news, stock markets rose?

The reason is the fact that the Covid-19 pandemic has rather negatively affected smaller companies and some specific industries. Tourism, hospitality, hotel industry and all industries connected to them lost the vast majority of sales from day to day. All work, shopping and entertainment moved to homes and it was the global giants such as Amazon, Netflix, Google and others who took advantage of the situation. All of these companies are included in the index of the largest companies in the United States – and indeed the world. In the image below, we can see the rocket growth in 2020 of these technological giants, the so-called FAANGM (Facebook, Apple, Amazon, Netflix, Alphabet, Microsoft) compared to other companies from the 500 largest in the USA.

ZOOM, a specialist in online conferences and video calls, also experienced huge success last year. While 10 million users were using the app daily in December 2019, in April 2020 it was already 300 million daily! Quite interesting growth for a company that nobody even knew about a few years ago. Today, it is traded on the US stock exchange and, along with other tech firms, has helped fuel the stock market's recovery in 2020.

If an investor had invested, for example, in just one sector, or even worse in several stocks, even famous brands such as Marriott or Delta Airlines, he would have no choice but to watch helplessly as he loses almost half of his money.

Spreading your investment across different sectors is key when investing. A single card bet does not pay out in the vast majority of cases. It is always true that in a crisis, all companies think about how to avoid losses, and there are always those who can seize it as an opportunity.

Wondering what portfolio layout would suit your investment profile?

Do not hesitate to contact us

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Ing. Petra Štěpánková, MBA, EFA

+420 604 218 602

petra@meliorinvest.cz

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