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Visualizing S&P Performance in 2020, By Sector

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Visualizing S&P Performance in 2020, By Sector

With 2020 finally over, many are breathing a sigh of relief.

Investors faced a tumultuous year. Still, the S&P 500 finished strong with a 16% gain, outpacing its decade-long average by 4%. Many sectors that provided the new essentials—like online products, communication software and home materials—outperformed the market. It was, of course, a challenging year for other sectors including energy.

This Markets in a Minute graphic from New York Life Investments ranks the 2020 performance of every sector in the S&P 500 using data from S&P Global.

S&P Performance By Sector

As the world coped with devastating losses and uncertainty, how resilient were S&P 500 sectors?

Here’s how every sector performed, from top to bottom.

S&P 500 Sector2020 Price Return2019 Price Return10-Year Annualized ReturnsP/E (Trailing)*
Information Technology42.2%48.0%18.9%31.6
Consumer Discretionary32.1%26.2%16.0%48.1
Communication Services22.2%30.9%5.6%27.5
Materials18.1%21.9%6.6%40.4
Health Care11.4%18.7%13.8%25.3
Industrials9.0%26.8%9.6%28.9
Consumer Staples7.6%24.0%8.7%25.1
Utilities-2.8%22.2%7.2%21.1
Financials-4.1%29.2%8.6%15.3
Real Estate-5.2%24.9%6.6%36.3
Energy-37.3%7.6%-5.6%N/A
S&P 50016.3%28.9%11.6%31.2

*Trailing P/E measures market value divided by the last 12 months of earnings

As no surprise, technology came out on top with over 42% returns for the year.

COVID-19’s economic impact benefited the sector as activities, from work to socializing, moved online. In 2020, the tech sector’s returns were more than double its 18.9% average over the last decade.

Consumer discretionary was also one of 2020’s top sectors. Home to online marketplace giants along with electric vehicle companies, it posted a 32.1% return—surpassing its 2019 gains.

With -37.3% returns, energy was the hardest hit of all. Historic demand disruptions, along with OPEC tensions led to sector weakness. Like energy, real estate had a difficult year. Still, after declining 40% in March, by year-end, the sector mostly rebounded with just 5% losses.

Why The Market Had a Strong Year

Looking back, one of the biggest questions baffling investors is: why did the market perform so well? A number of factors, including government stimulus, low interest rates, and vaccine expectations can all help explain some of its behavior.

Government Stimulus

In March, the U.S. government approved a $2.2 trillion CARES-Act relief package, breaking historical records for stimulus. This helped create optimism in the market as individuals, small-businesses and corporations received financial relief.

At the same time, the Federal Reserve extended its “quantitative easing” policies that it introduced in 2008. Quantitative easing is when the central bank buys a number of longer-term securities. This type of measure is designed to boost economic activity through injecting liquidity into the market.

In 2020, the Federal Reserve began purchasing corporate bonds and other assets—on top of treasuries and mortgage-backed securities (MBS)—for the first time ever. In fact, the Federal Reserve is now estimated to 34% of MBS in the U.S. to help protect American homeowners.

Low Interest Rates

Another force that may have contributed to S&P performance in 2020 was the Federal Reserve’s low-interest rate policy.

Low interest rates mean that borrowing costs are low, which can be favorable for business conditions. In September, the Federal Reserve announced a “lower for longer policy”, stating that it won’t raise rates until 2023.

Vaccine Expectations

The promise of a vaccine rollout has contributed to S&P 500 performance momentum, along with expectations that things could return to normal in 2021. It also corresponded with double-digit gains for the health care sector.

Though roadblocks and uncertainties remain, vaccine announcements in November also helped spur an uptick in the energy sector, which will be influenced by global vaccine efforts in the months ahead. This, in turn, will help travel resume to normal and spark oil & gas demand.

S&P Performance: What Comes Next in 2021

With the first year of the pandemic behind us, it’s hard to say how the story will continue.

As countries acquire vaccines, there is hope for S&P 500 performance, and future stimulus measures could prop up the stock market. Of course, both the containment of the virus and people feeling safe will have an outsized impact on S&P sectors in the shift to a post-pandemic world.

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Markets in a Minute

Wall Street vs Main Street: The Stock Market is Not the Economy

To give context to the Wall Street vs Main Street debate, we compare S&P 500 returns and U.S. GDP growth since 1980.

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Wall Street vs Main Street

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Wall Street vs Main Street

In 2020, the stock market and the economy had a very public break up. The Wall Street vs Main Street divide—the gap between America’s financial markets and the economy—was growing. By the end of the year, the S&P 500 Index closed at a record high. In contrast, 20 million Americans remained unemployed, up from 2 million at the start of the year.

Was 2020 an outlier, or does the performance of the stock market typically diverge from the economy? In this Markets in a Minute chart from New York Life Investments, we show U.S. economic growth and stock market performance over the last four decades, to see how closely the two relate.

GDP Growth and S&P 500 Returns

Here’s how annual GDP growth and S&P 500 Index returns stack up from 1980 to the second quarter of 2021. Both metrics are net of inflation.

YearReal GDP GrowthReal S&P 500 Returns
1980-0.3%13.9%
19812.5%-18.3%
1982-1.8%10.8%
19834.6%13.4%
19847.2%-2.5%
19854.2%23.0%
19863.5%12.9%
19873.5%-2.2%
19884.2%7.9%
19893.7%22.4%
19901.9%-12.4%
1991-0.1%23.4%
19923.5%1.4%
19932.8%4.4%
19944.0%-4.2%
19952.7%31.4%
19963.8%17.2%
19974.4%29.3%
19984.5%25.1%
19994.8%16.6%
20004.1%-13.5%
20011.0%-14.6%
20021.7%-26.0%
20032.9%24.5%
20043.8%5.8%
20053.5%-0.7%
20062.9%11.4%
20071.9%-0.6%
2008-0.1%-39.2%
2009-2.5%21.6%
20102.6%11.1%
20111.6%-3.1%
20122.2%11.6%
20131.8%28.3%
20142.5%10.9%
20153.1%-1.4%
20161.7%7.3%
20172.3%17.2%
20183.0%-8.1%
20192.2%26.8%
2020-3.5%14.9%
Q1 20211.5%4.5%
Q2 20211.6%5.8%

Note: For Q1 and Q2 2021, real GDP growth and inflation rates are quarterly rates and are seasonally adjusted.

More often than not, GDP growth and S&P 500 Index returns have both been positive. The late ‘90s saw particularly strong economic activity and stock performance. According to the White House, economic growth was bolstered by cutting the deficit, modernizing job training, and increasing exports. Meanwhile, increasing investor confidence and the growing tech bubble led to annual stock market returns that exceeded 20%.

In the selected timeframe, only 2008 saw a decline in both the stock market and the economy. This was, of course, caused by the Global Financial Crisis. Banks lent out subprime mortgages, or mortgages to people with impaired credit ratings. These mortgages were then pooled together and repackaged into investments such as mortgage-backed securities (MBS). When interest rates rose and home prices collapsed, this led to mortgage defaults and financial institution bankruptcies as many MBS investments became worthless.

Moving in Opposite Directions

What about when the Wall Street vs Main Street divide grows?

Historically, it has been more common to see positive GDP growth and negative stock performance. For example, real GDP grew by a whopping 7% in 1984 due to “Reaganomics”, such as tax cuts and anti-inflation monetary policy. However, the stock market declined as rising treasury yields of up to 14% made fixed income investments more attractive than equities.

On the other hand, in five of the six years with negative GDP growth, there have been positive stock returns. The most recent example of this is 2020. Real GDP declined by 3.5%, while the S&P 500 returned almost 15% net of inflation.

The Stock Market is not the Economy

There are a number of reasons why the stock market may not necessarily reflect what is happening in the economy.

  • The stock market reflects long-term views. A stock’s price factors in what investors think a company will earn in the future. If investors are confident in the likelihood of an economic recovery, stock prices will likely rise. In contrast, GDP growth is a hard measure of current activity.
  • Sector weightings in the stock market do not reflect their contributions to GDP. The stock market remained resilient in 2020 largely because technology, media, and telecom (TMT) stocks performed well. Despite making up 35% of the market cap of the largest 1,000 U.S. stocks, these companies only account for 8% of U.S. GDP. In contrast, hard-hit companies such as restaurants and gyms generate lots of jobs and contribute materially to GDP. However, many of these businesses accounted for a small portion of the stock market or are not even publicly listed.
  • Fiscal policy lags behind monetary policy. The U.S. Federal Reserve (Fed) can act quickly. For instance, the Fed bought $1.7 trillion of Treasury securities between mid-March and June 2020 to stabilize financial markets. On the other hand, fiscal support requires legislative approvals. The U.S. government initially provided large-scale economic stimulus through the CARES Act in March 2020, but further relief packages were stalled due to political disagreements.

While many factors are at play, the above can help explain the Wall Street vs Main Street divide.

Wall Street vs Main Street: Together and Apart

Over the last 41 years, the economy and the stock market have moved in opposite directions almost as often as they have moved in the same direction. Here’s a summary of their movements from 1980-2020.

 # of Years
Stock Growth, GDP Growth22
Stock Decline, GDP Growth13
Stock Growth, GDP Decline5
Stock Decline, GDP Decline1

Since 1980, these time periods of differing performance have never lasted more than three consecutive years. In fact, one economist described the stock market and the unemployment rate as two people walking down the street, tethered by a rope.

”When the rope is slack, they move apart. But they can never get too far away from each other.”
—Roger Farmer, University of Warwick economist

After their public breakup in 2020, the Wall Street vs Main Street divide appears to have healed. In the first two quarters of 2021, both the stock market and the economy saw growth. Perhaps it’s easiest to sum up their relationship in two words: it’s complicated.

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Markets in a Minute

Data Centers: Investing in the Infrastructure of the Future

Infrastructure refers to any asset that provides an essential service. In today’s interconnected world, data centers are exactly that.

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Data Centers

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Data Centers: Investing in the Infrastructure of the Future

Digital transformation is one of the world’s most prominent trends today.

For evidence, consider the growth in internet users worldwide. By 2023, 5.3 billion people (66% of population) will be using the internet, up from 3.9 billion (51% of population) in 2018.

This growth has resulted in an incredible amount of data being produced each day, whether its from streaming music on Spotify or buying goods on Amazon. But how is all this data being processed?

In this Markets in a Minute chart from New York Life Investments, we shed light on the importance of data centers, and why they should be considered as core infrastructure.

The Role of the Data Center

A data center is a facility that stores, processes, and disseminates data. There are thousands of them around the world, and collectively, they’re referred to as the “cloud”.

This puts data centers at the center of nearly everything we do online: e-commerce, communications, storage and back-up, and even online gaming. To gain a better sense of what this all looks like, the following table breaks down the storage capacity of the world’s data centers.

Segment2016 Storage Capacity (exabytes)2021 Storage Capacity (exabytes) 
Compute160470
Collaboration170400
Database & analytics150380
Enterprise resource planning180420
Video streaming50180
Social networking60160
Search engine30100
Other consumer apps70190
Total8702,300

Source: Statista (2021)

One exabyte is equal to one billion gigabytes, which means the world currently has 2.3 trillion gigabytes of total storage.

The largest segment is compute instances, which are cloud-based workstations used by data scientists. At the lower end of the scale are segments like video streaming (includes Netflix and Hulu) and social networking (think Facebook or LinkedIn).

Cloud Spending Reaches a Historic Milestone

For businesses that create and use data, moving to the cloud (as opposed to maintaining their own servers) has plenty of advantages like cost savings, flexibility, and security.

This is driving exponential growth in cloud infrastructure spending, which reached a record $130 billion in 2020. At the same time, spending on data center hardware decreased from $96 to $90 billion. These results are partly attributed to COVID-19, which forced many businesses to switch to a work-from-home operating model.

A survey conducted by 451 Research found that 40% of businesses had increased their usage of cloud services during the pandemic. In addition, 85% of those who were impacted indicated that the move would be a permanent one.

Data Centers are Infrastrcture

The scope of an infrastructure investor has historically been limited to companies in construction, energy, and transportation.

But what defines infrastructure?

It’s any physical system that is vital for an economy’s development and prosperity—and in a world where over 5 billion people are expected to be online by 2023, the data center is the perfect embodiment of that.

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