MANHATTAN (CN) — For investors, 2020 ended not with a bang but with a whimper, as markets posted meager gains to close out the last few equity trades of the year.
Thursday’s minor gains only added to the year’s overall success, as all three indices are far higher than when they started the year despite the economic ravages of the Covid-19 pandemic.
By the closing bell, the Dow Jones Industrial Average gained 183 points after flatlining most of the day. Overall, the Dow — which shed about 5,000 points in March, when lockdowns were first announced — has gained more than 2,500 points since January.
The S&P 500, which suffered its fastest sell-off in history back in March, inched forward to close out the year at 3,756 points. All told, the index gained more than 500 points in 2020 and 370 points since its pre-pandemic high of 3,386 points.
Of all three indices, the Nasdaq has had the easiest path during the pandemic, owed mostly to its tech-heavy load. The exchange finished 2020 at 12,888 points, a roughly 31% increase over its February high of 9,817 points.
One of the biggest story lines in 2020 was how the Federal Reserve reacted to the economic downturn. Many have credited the central bank’s various lending facilities and low interest rates with keeping markets afloat and calming nervous investors.
For 2021, the Federal Reserve could see its ability to react somewhat neutered. During discussions over the next stimulus package, Republican Senator Pat Toomey of Pennsylvania had tried to cull the central bank’s powers, claiming that “we are clearly not in a financial crisis at this point.”
However, experts believe the Fed will likely take measures similar to those from late 2008 through 2015, when the federal funds rate was kept at zero to 0.25%. “As of today, every contract with at least one trade on the books expects rates to stay at 0-25 basis points through September 2022,” wrote Nicolas Colas of DataTrek Research, noting that one possibility is that rates will remain at zero for the next several years, replicating the years after the Great Recession.
Earlier this week, President Donald Trump finally relented and signed a second stimulus package, though additional relief checks worth $2,000 are still held up by political infighting.
“The relief package won’t help until later in January. Thus, December should be OK, but not outstanding,” wrote analyst James Meyer of Tower Bridge Advisors in an investor’s note. “But markets look ahead. The vaccines are rolling out at about the rate most private forecasters predicted or about half the rate the federal government promised.”
The makeup of the U.S. Senate, which should be determined after the Jan. 5 run-off in Georgia, may also play a part in how the federal government approaches the economy next year.
“We will look to 2021 with optimism,” Meyer continued. “As the year progresses, markets will tell us whether that optimism is justified. The first big moment will come Wednesday morning when the market learns who controls the Senate.”
Tom Essaye of the Sevens Report agrees, noting that if Democrats win both seats, and thus control of the Senate, that could lead to market expectations being upended. “Specifically, if Democrats win, then expectations will rise for more economic stimulus,” Essaye wrote. “But with the $900 billion stimulus deal already passed, it’ll be very interesting to see how markets, specifically bond markets, react to the prospect for even more stimulus.”
The last year has been a mixed bag for Corporate America, with incredibly high unemployment due to several ravaged industries.
“As 2021 unfolds, it will become more obvious that corporate America has created meaningful inefficiencies during the pandemic,” said Peter Ricchiuti, a finance professor at Tulane University. “For white-collar employees, these could include anything from remote working to the realization that jobs could be combined and there would be less need for so many workers.”