Macro Musings January 2021

William Cunningham |

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  • At the end of the first quarter last year, there were bear markets across the globe. By the end of 2020, nearly all equity markets had rebounded, finishing positive on the year. It was a remarkable turnaround, and the S&P 500 saw one of the strongest rallies of all time after the fastest drop in history. 

  • The S&P 500’s performance in the final two months of 2020 marked one of the best periods in index’s history. When stocks did that well in the past, the momentum continued and led to double-digit returns over the next year.


2020: the dr. Jekyll and Mr. Hyde market

It’s difficult to believe now, but market action was uneventful through the first two months of 2020. Indeed, the S&P 500 made a new all-time high on February 19th while the pandemic was already well underway in China. Then, one week later, everything began to unravel as it became clear that the virus had spread and a pandemic unlike anything we’ve seen in a hundred years was about to go global. The stock market suffered the fastest 30% drop in history, even exceeding the speed of the market crashes of 1929 and 1987.

By March 23rd, the S&P had dropped 33%. But that was it. The next day, the rally began, thanks to a massive stimulus bill and a Federal Reserve that unleashed every tool it had. 

The combination equated to the fastest fall and swiftest rally in market history (chart from Bank of America):

While there are many lessons from 2020 for investors, two stand out to us:

  1. Markets will continue to surprise us in ways we can’t imagine.
  2. The only way to deal with these exogenous risks is by executing a consistent process, whether it is a buy-and-hold asset allocation approach or tactical strategies that reduce risk based on various indicators.  

Asset class review

The following table highlights major asset class returns for the past fifteen years (from Novel Investor):


Some additional insights:

  • Small Cap stocks outperformed Large Cap stocks for the first time in 4 years. Thanks to a huge rally in the 4th quarter, small company stocks outperformed large ones for the first time since 2016. 
  • Cash, while “safer”, once again delivered low returns. Using the 3-month Treasury bill as a proxy, cash returned just .6% in 2020. Over the last 15 years, its returns have been barely over 1% annualized. We are in a new era of low interest rates. To generate real returns, there is no way to avoid taking some risk.   
  • Real Estate Investment Trusts (REITs) were the only major asset class to finish the year with a loss. REITs struggled in 2020 because so much of that market is tied to areas of the economy that suffered as a result of the pandemic. Key sectors like Office, Retail (with a heavy mall focus), and Lodging (hotels) saw large losses, and other REIT sectors like Health Care could not fully pick up the slack. 
  • The S&P 500 outperformed Novel’s Asset Allocation strategy for the twelfth consecutive year. Novel Investor outlines a basic asset allocation portfolio, which they include in the above table as indicated by the gray box with the “AA” heading. We first highlighted the recent weakness of the Asset Allocation portfolio in 2015. In 2020, the S&P once again outperformed the AA portfolio. In the prior decade, from 2000-2008, the AA model consistently beat the S&P 500 despite the portfolio’s large allocation to bonds. This remarkable streak highlights both the strength of US Large Cap stocks vs. Mid and Small Cap stocks, as well as the relative weakness in emerging markets and Europe over the past decade. Will 2021 finally be the year asset allocation beats the market?


What a strong FINISH in 2020 could mean for THE coming year

The market had a remarkable finish in 2020, with the best November and December performance since 1950. Market rallies in Q4 aren’t unusual, but double-digit rallies over the last two months are rare, with only five occurrences since 1950. In every case, the following year saw a minimum gain of 10% and an average gain of 18% (table from LPL):

These types of price studies guarantee nothing, but we find them useful in outlining potential outcomes based on price action and momentum. Further, they can dispel the hot takes that tend to pop up when markets rally as strongly as they have. For example, one might view the recent rally as “too far too fast” or “future gains being pulled forward”, suggesting weaker performance in the future. While this thinking makes sense intuitively, the study above shows how this logic hasn’t held up historically.



The latest episode of the Corbett Road Podcast was published last week. We discuss our 2021 outlook, the new political landscape, and if the market is in a bubble. 

The Corbett Road Podcast is available on all major podcasting platforms, including Apple, Google, and Spotify. Search “Corbett Road Podcast” and be sure to hit Subscribe to get the latest episode as soon as it’s released. You can also listen to it on our website at


The chart(s)/graph(s) shown is(are) for informational purposes only and should not be considered as a suggestion of any investment recommendation, investment strategy, or as an offer of advice to buy, sell, or exchange any investment product or investment vehicle. Past performance may not be indicative of future results. While the sources of information, including any forward-looking statements and estimates, included in this (these) chart(s)/graph(s) was deemed reliable, Corbett Road Wealth Management, Spire Wealth Management LLC, Spire Securities LLC and its affiliates do not guarantee its accuracy. 

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of Spire Wealth Management LLC, Spire Securities LLC or its affiliates.

All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. MACROCASTTM is a proprietary index used by Corbett Road Wealth Management to help assist in the investment decision-making process. Neither the information provided by MACROCASTTM  nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The phrase “the market” refers to the S&P 500 Total Return Index unless otherwise stated. The phrase “risk assets” refers to equities, REITs, high yield bonds, and other high volatility securities. Past performance is no guarantee of future results. 

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC, a Registered Broker/Dealer and member FINRA/SIPC.