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ASX 200, Nasdaq, and Dow Jones: 2020 in Review

We briefly look at some of the events that defined markets over the year and how a number of key equity benchmarks performed in 2020.

2020: A year of volatility and anxiety

Ultimately, the coronavirus pandemic exposed the fragility of America’s health care system and the global economy, the danger of strong man rhetoric, with Trump at one point boasting you don't need to be ‘afraid of Covid' and the inherent limitations of capitalism, as the Federal Reserve dropped interest rates to near zero and continues to pursue an aggressive Quantitative Easing (QE) agenda, holding the belief that they could print their way out of any problem we face.

While inflation hasn’t really picked up, many global equity benchmarks are currently trading around all-time highs. If the Fed’s main aim was to see risk assets surge in value: They have succeeded with flying colours.

Looking ahead, experts expects the US Fed to keep interest rates at near zero until 2024, while the Fed itself said it would continue to engage in large scale quantitative easing, with the central bank set to undertake around $120 billion in asset purchases a month. An end date remains elusive to these purchases, with Fed Chair Jerome Powell saying:

‘We don’t expect that things will deteriorate, but nonetheless we have a habit of keeping things in place for a while.’

Australia’s RBA made similar moves, with the official cash rate sitting at an ultra-low 0.10%. The RBA even initiated its own quantitative easing program in November, at the time announcing a $100 billion program.

One step forward, two steps back

While things have improved since March, it hasn’t been smooth sailing to get there.

In March, when investors, commentators and everyone in between were extrapolating the impact of the coronavirus, the initial reaction was to sell, sell, sell – seemingly at any price. The tech-heavy Nasdaq shed ~30% between February to March, while the Dow Jones Industrial Average fell as much as 37% and the ASX 200 benchmark collapsed closer to 36%.

As markets bottomed-out and volatility came to dominate the day to day news flow, we covered a range of topics, with an Australian focus, that readers may consider worth revisiting now that the dust has settled, including:

Following that March meltdown something interesting happened though: markets rallied and they kept rallying, hard. Tech stocks in particular outperformed, as e-commerce companies saw their revenues soar off the back of government mandated lockdown laws. As a consequence of this outperformance, many traditional valuation measures were discarded or mocked – and many tech companies now trade on stratospheric sales multiples.

By comparison to tech, old economy stocks struggled and continue to do so, with many airline and travel stocks still trading well off their pre-covid levels.

Illustrating that point, the Nasdaq 100 is up 42% YTD, while the Dow Jones is up just 4.37%. The broad-based S&P 500 is up a more respectable 13%.

By December 24, the ASX 200 continued to trade lower than it did on January 2, down 0.2% in that period, to last trade close to the 6,700 point level.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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