2020 taught us the importance of building a portfolio that’s prepared for any storm.
But you don’t need a crystal ball to create a resilient portfolio; balance and patience are extremely effective on their own. Here’s a look back at index performance for the past year – and what could come in 2021:
2020 index performance: Top companies thrive
No surprise here. In 2020, the biggest companies in America continued to do fine. These companies, including major players like Apple, Amazon, Microsoft and Wal-Mart, make up about a quarter of the S&P 500 index.
Big tech companies, healthcare and communications stocks, which also make up a huge portion of the S&P 500, saw a boost this past year, as everyone was home and relying heavily on technology to keep daily life moving. That means that the S&P 500 heavyweights came out of 2020 unscathed, or even experienced growth.
Of course, some industries were absolutely crushed under the weight of the pandemic. The energy, retail and travel sectors faced enormous challenges, and it showed in their performance for 2020. However, those sectors also make up a much smaller percentage of the S&P 500.
Why the S&P 500 Index Held Up in 2020
The coronavirus took trends already happening in our everyday lives and accelerated them. People were already beginning to work from home and opting to shop online instead of going to the store. And because the S&P 500 boosts companies who are on a growth trajectory, it allowed many of those huge companies to experience even faster success.
Because those companies make up the lion’s share of indexes, they held up through the trials of 2020. The downside is that it also expedited the fallout for those companies that were struggling before the pandemic.
2020 wasn’t a year where people stopped spending or investing; they just rapidly changed their spending habits. And that was reflected in the S&P 500.
What 2021 Indexes Might Look Like
Expect 2021 to look a lot like 2020. We are still in a pandemic, though vaccine success has increased investor optimism.
But the major players aren’t going anywhere. People will still be working from home and relying heavily on technology to help them do that. They will stream movies instead of going to the theatre. They’ll order household items on Amazon instead of going to the store. They’ll be hesitant or unable to travel, attend sporting events or eat out at restaurants. Once again, those big players are very likely to thrive as we continue to adjust to the monumental changes of our daily lives.
The downside of the growth that these larger companies have experienced is that in some cases, they have taken business away from smaller companies. Small businesses and lower-income workers have been greatly affected by this pandemic, and may continue to struggle even after the dust settles. That will also have an impact on the markets and the economy overall.
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