2020 was a wild year for the stock market. The COVID-19 pandemic had a huge negative impact on global stock markets. However by the end of the year most stock markets largely recovered.
For the second year in a row, the US stock market outperformed all other major asset classes. All asset class returns were positive nominal returns with the exception of commodities and REITs. All but commodities, REITs, and cash produced real returns in excess of inflation.
| Asset class | 2020 return |
| US stock market | 21% |
| Long term treasuries | 18% |
| Emerging markets | 15% |
| Corporate bonds | 11% |
| Intl developed ex-US market | 10% |
| Intermediate term treasuries | 8% |
| Global bonds (USD hedged) | 7% |
| Short term treasuries | 4% |
| Cash | 0% |
| REIT | -5% |
| Commodities | -24% |
US equities led asset class returns with an annual return of 21%. International equities also performed well with equities in emerging markets returning 15% and developed countries returning 10%. This is all despite the global stock market selloffs that occured in March as COVID-19 fears rattled stock markets.
Bonds of all types performed very well as government central banks raced to lower interest rates across the globe in hopes to stimulate economies in response to COVID-19 related economic impacts. Long term treasuries returned 18%, corporate bonds returned 11%, intermediate term treasuries returned 8%, global bonds (USD hedged) returned 7%, and short term treasuries returned 4%. Reminder, bond prices move inversely to bond yields. So as interest rates and yields declined, existing bonds became more valuable.
Real assets performed poorly. Cash returned 0.4%, REITs returned -5%, and commodities returned -24%. These poor returns were driven by a lack of demand across markets as the global and regional economies slowed due to government actions to limit the spread of the COVID-19 pandemic, such as lockdowns and quarantines. Time will tell of the pandemic has a longer-term impact on real estate demand as many commercial real estate offices remain empty and more companies adopt remote work and flexible work arrangements. Remote work flexibility is also affecting residential real estate as employees choose to move away from major metropoitain areas to suburns and smaller cities with more living space.
Inflation increased but remained very low at 1.36%. Most asset classes returned in excess of inflation for real returns, except for cash, REITs, and commodities. Note that cash returned a negative real return (it was lower than inflation)–if you don’t already have one, at least get a high yield savings account.
2020 was a good year for stocks
Although there was volatiliy and stock returns were looking scary in March and April, 2020 was overall a good year for stocks.
Although on average stock markets generally return ~10-12% annually, returns of 10-12% are not the that common. More often stock returns are in excess of these values, or in some years below these values, which averages out to the 10-12% return.
In 2020 US stocks returned 21%. This is in fact within the most commonly occurring range of returns, 15-25%.
