Index	4th Quarter	1 YR
S&P 500 Large Cap Index	11.69%	16.26%
S&P Small Cap 600 Index	30.83%	9.57%
S&P Developed BMI International Index	15.24%	14.54%
S&P U.S. Aggregate Bond Index (total return)	0.75%	7.36%
S&P Municipal Bond Index (total return)	1.72%	4.95%
Dow Jones Equity All REIT Index	7.32%	-8.13%
Dow Jones Commodity Index (total return)	14.03%	-2.98%

Source: Dow Jones, data as/of 12-31-2020 (doesn’t include dividends unless noted). Here is a comprehensive list of returns.

If you were locked in a sound-proof chamber all year with no access to news, you might think that 2020 was another ordinary year with above-average market returns! Obviously, there was nothing ordinary about the past 12 months. Maybe it does show that looking at your investment statement once a year could be beneficial though!

In all, most stock indexes – both U.S. and International – saw positive gains. If you had asked me in March 2020 (and maybe you did), you would have heard me say that I wouldn’t be surprised if the markets closed the year higher. It was hard to conceptualize at the time, but I truly believed it. What I didn’t realize was how quickly the market would recover, and blow through new highs! 

COVID-19 forced more people to be home, and this was a big reason why certain sectors won big while others lost big. In recapping the winners, I’d say they were mostly in housing, big retail, big tech, video games, gold/silver, and clean energy. Amongst the losers, you will see travel, hospitality, cruise lines, oil, malls, automakers, and banks. Most diversified portfolios had a blend of the above.

Interest rates remained low with the 10-year bond yielding @ .92% (yes, less than 1). The Federal Reserve has been frequently reminding us that the low-interest-rate policy is likely to be in place through 2021 and maybe longer.

Low rates meant that 2020 was the year of record-low mortgage rates. One would wonder if the records will continue in 2021. Lawrence Yun, the chief economist at the National Association of Realtors, expects that mortgage rates will climb back up to around 3 percent in 2020, which is still far below the long-term average. Many housing economists are predicting another strong year for real estate, due to a combination of low rates and lack of supply on the market.

One interesting topic to me is our country’s population trend over the past 10 years. While the total US population increased 6.5% from 2010 to 2020, it increased more than 17% in Utah, 16% in Texas, 16% in Idaho, 16% in Nevada, 15% in Arizona, and 15% in Florida. Meanwhile, state populations declined in West Virginia, Illinois, New York, Connecticut, and Vermont, with very slow population growth elsewhere in the Northeast and Midwest.

At least three major tech companies are in the process of moving their headquarters from California to Texas; financial firms are moving operations from New York to Tennessee and Florida. Workers and businesses are voting with their feet, leaving high-tax and less competitive states in search of greener pastures. What does this all mean? I am not exactly sure – but I will be keeping my eyes on trends like this.

In the past few months as the market continued to recover, we executed some TAX-GAIN harvesting for clients in non-IRAs. This essentially means we purposely sold investments at a GAIN, if it made sense, to offset losses that may have been taken prior. In many cases, we took profits in growth companies (ie. tech) and shifted more towards value companies.

Looking ahead, I do think we continue to see value-oriented, dividend-paying companies close the gap on growth companies. I wrote about this a few months back – but here’s a link showing the chart of the two historically. We might also see better opportunities in small companies, relative to large caps. We started to see these trends in Q4-2020.

For those who have been in this investment game for many years, you know the financial markets normally do not move in a straight line (up or down) for very long. Fluctuations and bumps along the way can spark fear (or elation!) depending on what your expectations were previously. My advice is to not have expectations, or at least not make knee-jerk reactions when things don’t go as you had hoped. Instead, know that we will always experience swings in the markets. We all need to be better at being mentally prepared for unexpected movements. Ideally, we capitalize on opportunities as they present themselves.

Many are hopeful that the recent vaccines will help restore our lives back to somewhat normal. Recently many areas of our country have seen spikes in the virus, so vaccines should help bring those numbers down. <Hopefully.>

Pessimists will point to our country’s debt picture, or the potential for rampant inflation, or the unknowns of how the Biden administration will deal with China. These all are big questions – and as I like to call them – the ‘concerns of the day’. There will always be concerns, in my opinion. No avoiding them.

All this said I do think there the equity markets have a lot going for them. Stocks should continue to benefit from continued economic recovery. Monetary policy is very accomodating, and small businesses (and households – hello stimulus!) are getting fiscal support. Corporate earnings are expected to continue to improve.

I do read that the next decade could be challenging to achieve returns like we have experienced them for the past decade. We’ll be keeping our investment models accommodative to changes, looking for opportunities, or dodging stagnant sectors. It’s possible that we’ll continue to see the dollar drop, and value stocks gain ground on growth stocks. It’s also predicted that international investments will outperform US investments. All of this is impossible to predict, but I continue to have my fingers on the pulse of things.

As we continue to keep our eyes on the road ahead, I appreciate all of my clients for showing faith and discipline in “the process”. We’ve come to know that many a storm will arise from out of the blue, and we continue to do our best to weather the storm and move on.

Best wishes in the new year – bring on 2021!

Disclaimer: This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the advisor. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Dow Jones. Data is taken from sources generally believed to be reliable, but no guarantee is given to its accuracy.