While many will always remember 2020 as a year of strain, shock and struggle, that mood simply hasn’t translated to Wall Street reality.
If anything, this should be a season when dread gives way to guarded hope and gratitude. Yes, the news flow has been exhausting but we have survived what could easily have become an apocalyptic medical catastrophe and now are navigating the deepest recession in recent memory.
Stocks tested automatic trading brakes for the first time since the 2008 crash. And of course, millions of people have seen their lives disrupted or worse.
We mourn the dead and comfort the living, picking up the pieces along the way. But now, with 2021 on the horizon, there are reasons to be thankful.
The Fed stepped in decisively to cushion the economy from the worst of the pandemic shock. We haven’t seen a wave of bankruptcies, much less the bank failures some predicted.
And in that light, the market has held up remarkably well throughout the twists and turns. Here are some hard numbers to back up that statement.
Cash Keeps Flowing
Think back to before the Great Depression and large-cap U.S. stocks generally deliver about a 10% return in a typical year. Naturally, that’s just an average, with extremely bullish and bearish years canceling out.
This year started well enough with the S&P 500 rallying 3% into record territory before the COVID-19 crash opened up a nightmarish 35% bear market. Then the hard work of rebuilding began.
But by mid-August, the bear was in retreat and we were technically in the initial phases of what could become an extended baby bull run. We’ve already seen long-standing barriers fall, with the Dow Jones Industrial Average hitting 30,000 for the first time in history just this week.
Across the swings, the market as a whole is up about 14% year to date and 2 percentage points better when you look back across a full year-over-year period.
That’s right. Over the past 12 months, investors have done better than average. By that objective standard, 2020 has actually been a “good” year, far from a complete waste of time or money.
Furthermore, the gains have broadened out a lot beyond the Big Tech behemoths that led to the initial recovery. We have recent euphoria around COVID-19 vaccines to thank for that.
While I am not as euphoric about the vaccine news as some of my colleagues on Wall Street, I agree that the clock is now ticking down on the pandemic. Day by day, a cure or at least an effective vaccine gets closer. (Click here to listen to my recent Bloomberg interview on the subject.)
Either way, through all the turmoil, 230 members of the S&P 500 have now climbed 10% or more during the past 12 months. They’ve given shareholders something like a normal return since last Thanksgiving.
The usual Silicon Valley suspects figure prominently in that list. Apple Inc. (NASDAQ:AAPL) and Amazon.com Inc. (NASDAQ:AMZN) have rallied hard this year and one of my favorites, PayPal Holdings Inc. (NASDAQ:PYPL), has done even better.
But dig a little behind the high-tech glitter and the brick-and-mortar economy kept working throughout the pandemic. Walmart Inc. (NYSE:WMT) is up 27% over the past year. Home Depot Inc. (NYSE:HD) is only a little behind.
These aren’t digital companies. They don’t operate in a computing cloud where only computer viruses spread and nobody gets sick. On the whole, they sell physical products in physical stores.
Their strength reflects the strength of the consumer economy. Go down the list of leaders and you’ll find Costco Wholesale Corp. (NASDAQ:COST), McDonald’s Corp. (NYSE:MCD) and even Starbucks Corp. (NASDAQ:SBUX).
Yes, Starbucks had an okay year. It was nothing fantastic, but when so many coffee shops were deserted or actively shut down, the fact that the stock didn’t crash outright is worth a little cheering.
Similar stories play out again and again. While the past year was often grueling, hope for a better future eventually overcomes every market shock.
A Rest and A Reset
When the financial news channels interview me about where we’ve been and where we go from here, I lean toward the upside because I know that’s the way people on Wall Street think.
Negative postures only make money in the short term. You can only short a stock to zero once before the money stops flowing.
Those who remain open to better futures, on the other hand, have never been proved wrong in the long term. The market spends a lot more time breaking records than it does breaking down.
There will always be shocks to temporarily shake Wall Street’s nerve. But sooner or later, they always resolve into a new status quo and stocks pick back up where they left off.
I think that’s going to happen in the coming year. Yes, the political landscape remains fractious, but we’ve learned to live with that. What’s important is corporate fundamentals.
On that front, many sectors are picking right back up where they left off before the pandemic hit. I’m looking for communications stocks, materials producers, real estate investment trusts (REITs) and many consumer companies to make more money in 2021 than they did in 2019 when life seemed relatively simple.
In other sectors like health care and technology, the boom never ended. Even normally quiet consumer staples companies and utilities will see their growth curves steepen as the pandemic drag recedes.
We had high hopes for the market back in January. Next January should see a few of those dreams come true instead of turning into disappointments.
There’s a good reason my GameChangers portfolio has kicked into overdrive while my IPO Edge recommendations are soaring 8-11% a week. Investors are getting excited about the future again.
Dynamic companies can get back to work disrupting stagnant industries instead of defending against a disruptive world. New leaders can emerge, and shareholders can get rich.
In that scenario, we’ll have a lot to be thankful for a year from now.
We’ll talk about this on my Millionaire Maker radio show. Now there’s a podcast as well to keep you focused on opportunities to build real wealth while avoiding obvious threats. (Click here for a list of stations and archived episodes.)
CANNABIS CORNER: A Well-Balanced Pot Portfolio
I always urge investors to respect diversification. No portfolio should ever reflect an all-or-nothing bet on any stock, no matter how strong your conviction about it happens to be.
That’s been true this year in cannabis. Those who picked the wrong one or two cultivators have had to absorb catastrophic losses.
Aurora Cannabis Inc. (NYSE:ACB) has come a long way back from the brink, but it’s still down 64% year to date. Tilray Corp. (NASDAQ:TLRY) has been cut in half over the past 11 months.
Move down the food chain and the losses can be even more severe. Remember CannTrust Holdings Inc. (OTC:CNTTQ), which temporarily lost its licenses and has yet to recover its Nasdaq listing? If that was the only cannabis stock you liked, you lost a harrowing 84% of your investment.
But we’ve seen a few massive rallies as well. Canopy Growth Corp. (NYSE:CGC) has managed to gain ground across this rollercoaster year and is currently on track to deliver a 27% win for 2020 as a whole.
Medical marijuana leader Aphria Corp. (NASDAQ:APHA) is up over 30%. And then pot products packager Green Thumb Industries Inc. (OTC:GTBIF) has delivered a seven-fold return (700%) as investors catch on to the power of next-generation business models.
This demonstrates what I’ve been saying all along. The industry is not in trouble. Sales across North America are as robust as ever. We’re still in a “green gold rush” situation where cash is flowing.
The only problem is that too much cash flowed into some of these companies too early. Now they’re having a hard time growing into their valuations before investors get frustrated.
Meanwhile, ambitious and innovative competitors keep emerging. We’re invested in a few of them in my IPO Edge now. I have high hopes for their ability to turn green into gold.
But, as IPO Edge subscribers have learned, diversification is essential. Admittedly, IPOs are hot right now and I’ve picked six 100% winners so far this year, but every early-stage investor expects a few losses along the way.
That’s why we follow a full-portfolio approach where subscribers buy a little bit of everything and trust the home runs to outweigh the missed swings. It’s working. We’re up nearly 38% year to date across the current portfolio.
And similar logic applies in the cannabis universe. I track 10 key stocks in that space. Some are still nursing those deep losses I mentioned while others are making shareholders extremely happy.
Why roll the dice on one or two concentrated positions when you can simply buy the group and do well overall? You have to swallow a few losses, but you’re guaranteed to own the ultimate winners.