Quarterly Market Review: Q4 2020


Recovery Alphabet Soup

After saying a collective “good riddance” to 2020 and moving forward into 2021 with renewed optimism, it might be worthwhile to take a peek backward, if we dare. Amidst the backdrop of a pandemic-impacted society and fractured political landscape, there were several positives in the financial world.


Since dropping 34% between February 19 and March 23, the U.S. stock market went on to rise 68% and finish the year with a roughly 16% gain. Similar declines and recoveries were evident throughout the world, and new all-time highs were realized in many markets.


Massive government intervention around the world also flowed into the markets. One result was a sudden decline in interest rates, which helped contribute to a significant housing boom. Once unthinkable, mortgage rates below 3% are now commonplace. The reduction in rates (coupled with the impact COVID has had on how we live and how we work) led to an influx of buyers and migration out of some urban areas.


Through all of this, market pundits tried labelling the recovery by various letters to help visualize the impact and expectations. Are we in the midst of an L recovery? Perhaps a U, or a V seems appropriate for history’s shortest bear market. Beyond the markets, however, it feels more like a K, symbolizing upward mobility for some and a continuing downward struggle for many.


This week, a report titled "The Inequality Virus" was published by Oxfam, an international humanitarian group. According to the report, the world's top 10 billionaires collectively saw their wealth grow by $540 billion since the COVID pandemic began. This is a sharp contrast from the many hardships, economic and otherwise, that many around the world have experienced throughout the pandemic. Experts estimate the recovery for those most impacted may take over a decade.


While the rapid recovery has benefitted some of us, others remain deeply impacted. All that transpired in 2020 is certainly not behind us.


When it comes to the stock market, investors are always looking forward. What the world looks like today is not what moves stock prices – it is future profit expectations and a large pinch of unknowns. (Which helps explain how the market continued to climb even as COVID news continued to get worse). The elevated prices we continue to see typically indicate a continued economic recovery is expected in 2021, and we certainly hope so.


With that, we wish everyone a healthy, happy and safe 2021!

Economic Indicators at a Glance

Below you’ll find a snapshot of some top-line economic indicators, followed by the Quarterly Market Review.

Data source: Trading Economics. 2021.

Market Summary Fourth Quarter 2020 Index Returns

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2021, all rights reserved. Bloomberg Barclays data provided by Bloomberg.

World Stock Market Performance

MSCI All Country World Index with selected headlines from Q4 2020

These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.

Graph Source: MSCI ACWI Index [net div.]. MSCI data © MSCI 2021, all rights reserved.

It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.

World Asset Classes

Fourth Quarter 2020 Index Returns (%)


Equity markets around the globe posted positive returns in the fourth quarter. Looking at broad market indices, emerging markets outperformed non-US developed markets and US equities.

Value outperformed growth across regions. Small caps outperformed large caps across regions as well.

REIT indices underperformed equity market indices in both the US and non-US developed markets.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor's Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2021, all rights reserved. Dow Jones data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Treasury bills © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

U.S. Stocks

Fourth Quarter 2020 Index Returns


The US equity market posted positive returns for the quarter but underperformed non-US developed markets and emerging markets. Value outperformed growth across large and small cap stocks. Small caps outperformed large caps. REIT indices underperformed equity market indices.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market. Dow Jones US Select REIT Index used as proxy for the US REIT market. Frank Russell Company is source and owner of trademarks, service marks, and copyrights related to Russell Indexes. MSCI data © MSCI 2021, all rights reserved.

Real Estate Investment Trusts (REITs)

Fourth Quarter 2020 Index Returns


US real estate investment trusts underperformed non-US REITs during the quarter.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Total value of REIT stocks represented by Dow Jones US Select REIT Index and the S&P Global ex US REIT Index. Dow Jones US Select REIT Index used as proxy for the US market, and S&P Global ex US REIT Index used as proxy for the World ex US market. Dow Jones and S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

Select Market Performance

Fourth Quarter 2020 Index Returns

In US dollar terms, Austria and Spain recorded the highest country performance in developed markets, while Switzerland and Finland posted the lowest returns for the quarter. In emerging markets, Colombia and Hungary recorded the highest country performance, while Egypt and Kuwait posted the lowest performance.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. MSCI Index returns are in USD net of dividend withholding taxes. Country returns are the country component indices of the MSCI All Country World ex USA IMI for all countries except the United States, where the Russell 3000 index is used instead. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. MSCI data © MSCI 2021, all rights reserved. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Fixed Income

Fourth Quarter 2020 Index Returns

Interest rate changes were mixed in the US Treasury fixed income market during the fourth quarter of 2020. The yield on the 5-Year US Treasury note increased 8 basis points (bps), ending at 0.39%. The yield on the 10-Year Treasury increased 29 bps to 0.93%. The 30-Year US Treasury bond yield increased 18 bps to finish at 1.64%.


On the short end of the yield curve, the 1-Month US Treasury bill yield remained unchanged at 0.08%, while the 1-Year US T-bill yield decreased 1 bps to 0.13%. The 2-Year US Treasury note yield finished unchanged at 0.09%.


In terms of total returns, short-term corporate bonds added 1.14%. Intermediate-term corporate bonds returned 1.76%.


The total return for short-term municipal bonds was 0.44%, while intermediate-term munis returned 1.36%. Revenue bonds outperformed general obligation bonds.

One basis point (bps) equals 0.01%. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Yield curve data from Federal Reserve. State and local bonds are from the S&P National AMT-Free Municipal Bond Index. AAA-AA Corporates represent the ICE BofA US Corporates, AA-AAA rated. A-BBB Corporates represent the ICE BofA US Corporates, BBB-A rated. Bloomberg Barclays data provided by Bloomberg. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). FTSE fixed income indices © 2021 FTSE Fixed Income LLC, all rights reserved. ICE BofA index data © 2021 ICE Data Indices, LLC. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

This report was prepared by Gregory Saliba.

Gregory Saliba

President, Taurus Capital Management

saliba@tauruscap.com

(503) 756-2972

  • 20+ years in Corporate Finance, Debt Capital Markets and Investment Management

  • 2010 Oregon Ethics in Business Award Recipient

  • Public Speaker on Risk, Behavioral Finance and Ethics

  • Finance Faculty Member (12+ years)

  • Willamette University, Atkinson Graduate School of Management

  • Portland State University, School of Business Administration

  • Extensive Community Involvement


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