2020 was one of the wildest years in the stock market for a long time. A really long time. In true stock market fashion, it didn't fail to humiliate investors who dared to predict it's future course.
Bring on 2021 with rising interest rates, valuations at almost record highs, and last year's winners are facing strong headwinds - yet they continue to report solid results.
In this weeks chart we take a look at the big tech names' performance during 2020 and their performance during 2021 YTD.
Tesla, the biggest winner during 2020 gaining 743.3% is this years loser, down almost 17% YTD. Alphabet (Google) and Facebook are probably the only two companies that have been able to maintain some comparative returns this year when compared to that of 2020, although the year is far from over. Interestingly, the NASDAQ index returned 26.1% during 2020, and YTD during 2021, 23.6% - an impressive performance considering the number of companies the index that are in the red.
With valuations at nose bleed levels, inflation popping out its head, interest rates rising globally, the question here is whether or not the broader market can hold up on it's own two feet without the support of the technology sector. So far in 2021, it appears as though the broader market is turning it's back on the technology sector and running on it's own two feet. What is clear also is trying to pick the winners is becoming increasingly difficult. The number of stocks that outperformed the index in 2020 was only 40 out of 500 (S&P 500) - 2021 YTD only 15 stocks are outperforming the S&P 500 index.
I think investors are too attached to binary outcomes - that is, the broader market either rising or falling. The concept of markets within markets also applies to the stock market. The more I think about it, this segregated economy, the winners and the losers, the optimists and the pessimists, I think about the stock market as a calm blue sea - not much happens on the surface most of the time, yet beneath this mysterious blue sea are intense currents. There is so much more happening beneath the surface than what is visible to the naked eye. And although the water rises and falls, what happens beneath the water is what cannot be seen. Swimmers who are caught in a rip and who do not understand what is happening, or who may not have the necessary skills, panic and exhaust themselves trying to swim directly against the flow of water.
It's very possible that we could see some of these big technology names not doing much for a period of time whilst other sectors of the market play a bit of catch up. Investors jumping late on the tech rally might feel like a swimmer caught in a rip right now. Nothing is ever certain. The market, like the great blue sea, is unpredictable.