Markets in a Minute
Visualizing S&P Performance in 2020, By Sector
This Markets in a Minute Chart is available as a poster.
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 Sector | 2020 Price Return | 2019 Price Return | 10-Year Annualized Returns | P/E (Trailing)* |
|---|---|---|---|---|
| Information Technology | 42.2% | 48.0% | 18.9% | 31.6 |
| Consumer Discretionary | 32.1% | 26.2% | 16.0% | 48.1 |
| Communication Services | 22.2% | 30.9% | 5.6% | 27.5 |
| Materials | 18.1% | 21.9% | 6.6% | 40.4 |
| Health Care | 11.4% | 18.7% | 13.8% | 25.3 |
| Industrials | 9.0% | 26.8% | 9.6% | 28.9 |
| Consumer Staples | 7.6% | 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 500 | 16.3% | 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.
Markets in a Minute
Four Types of ESG Strategies for Investors
Amid a global wave of green investment, this graphic breaks down four types of environmental, social, and governance (ESG) strategies.
This infographic is available as a poster.
Four Types of ESG Strategies for Investors
In recent years, sustainable investment strategies have shown a number of benefits for investors, from resilience in market downturns to share outperformance in the long-term.
Meanwhile, investor interest has skyrocketed—with environmental, social, and governance (ESG) indexes advancing 40% between 2019 and 2020 alone. Given the increased demand for green investments, investors have an ever-expanding list of options to choose from. But what ESG approach is the right fit for you?
To answer this question, this Markets in a Minute chart from New York Life Investments looks at the primary strategies used in ESG investing to help investors choose the approach that works best for their portfolio.
What Kind of Investor are You?
Broadly speaking, there are four main approaches to ESG investing: ESG integration, exclusionary investing, inclusionary investing, and impact investing.
1. ESG Integration
“I want to integrate ESG factors and traditional factors to assess the risk/reward profile of my investment.”
For example, using an ESG integration approach, a company’s water usage and toxic emissions would be assessed against financial factors to analyze any future risks or investment opportunities.
2. Exclusionary Investing
“I want to screen out controversial companies or sectors that do not meet my sustainability criteria.”
Using an exclusionary investing approach, an investor may screen out companies whose revenues are from tobacco, gambling, or fossil fuels.
Related ESG Terms:
- Negative Screening
- Negative Selection
- Socially Responsible Investing (SRI)
3. Inclusionary Investing
“I want to seek out companies that are ranked highly in their sector based on sustainability criteria.”
With an inclusionary approach, a fund may include the leading companies in a sector, relative to their peers, such as the top performing tech companies in ESG.
Related ESG Terms:
- Positive Screening
- Positive Selection
- Best-In-Class
- Positive Tilt
- Thematic Investing
4. Impact Investing
“I want to invest in companies that attempt to deliver a measurable social and/or environmental impact alongside financial returns.”
Lastly, impact investing approaches may focus specifically on renewable energy companies that have the intent to make a positive environmental impact.
Related ESG Terms:
- Goal-Based Investing
- Thematic Investing
ESG Investing Strategies, By Market
How does interest in ESG strategies vary according to geographical region? Overall, interest has increased across all regions globally (where data was available).
| Interest in ESG By Market* | 2018 | 2020 |
|---|---|---|
| India | 98% | 100% |
| Mainland China | 95% | 98% |
| UAE | 90% | 94% |
| Mexico | N/A | 92% |
| France | 79% | 91% |
| Brazil | 82% | 90% |
| Japan | N/A | 88% |
| Hong Kong, SAR China | 71% | 86% |
| South Africa | N/A | 83% |
| Germany | 64% | 81% |
| Singapore | 77% | 78% |
| United Kingdom | 51% | 77% |
| Canada | 49% | 68% |
| Australia | 49% | 65% |
| U.S. | 49% | 57% |
*With interest in these strategies and already employing them
Source: CFA Institute (Dec, 2020)
At the top was India, where 100% of respondents expressed interest or were already using ESG strategies—up from 96% in 2018.
In fact, India developed National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business as far back as 2011. This was designed as a guideline for responsible business conduct, which later aligned to the UN Sustainable Development Goals in 2016.
Following closely behind were investors in China (98%) and UAE (94%).
By contrast, 57% of investors in the U.S. employed ESG strategies—the lowest among geographic regions. Despite this, in the last two years, this figure jumped 8%, and it may rise higher yet given U.S. president Joe Biden’s new climate priorities. Electric grid and clean energy, decarbonization, and electric vehicle incentives all fall under a massive $2 trillion infrastructure plan, which will likely have a significant impact on the dialogue surrounding ESG.
Going Green
As the global drive for ESG investment continues to rise, investors can harness a greater understanding of different ESG strategies to meet their personal objectives—whether it is risk/reward analysis, seeking out ESG top performers, or a measurable environmental impact.
Markets in a Minute
Visualizing U.S. Stock Ownership Over Time (1965-2019)
The proportion of U.S. stock owned by foreigners has climbed to 40%, while U.S. stock ownership within taxable accounts has decreased.
This infographic is available as a poster.
U.S. Stock Ownership Over Time (1965-2019)
The U.S. stock market is the largest in the world, with total U.S. stock ownership amounting to almost $40 trillion in 2019. But who owns all these equities?
In this Markets in a Minute from New York Life Investments, we show the percentage of U.S. stock owned by various groups, and how the proportions have changed over time.
The Groups Who Own U.S. Stock
Based on calculations from the Tax Policy Center, here is the breakdown of U.S. stock ownership as of the year 2019.
| Category | Share of U.S. Stock | Value |
|---|---|---|
| Foreigners | 40% | $16.0T |
| Retirement accounts | 30% | $12.0T |
| Taxable accounts | 24% | $9.5T |
| Non-profits | 5% | $2.0T |
| Government | 1% | $368B |
Foreigners own the most U.S. stock. Their portion of ownership has grown rapidly, climbing from about 5% in 1965 to 40% in 2019. Foreign ownership exists in two forms: portfolio holdings and foreign direct investment. The former includes holdings with less than 10% of voting stock, while the latter refers to voting stock of 10% or more.
Why has foreign ownership increased so substantially? According to the Tax Policy Center, the growth appears unrelated to U.S. corporate tax rates. Instead, the increase is likely a result of globalization, as U.S. holdings of foreign stock climbed at a similar rate over the same timeframe.
Outside of foreigners, the largest domestic ownership groups are retirement accounts and taxable accounts. Stock ownership within taxable accounts has decreased by 56 percentage points since 1965. On the flip side, U.S. households have increased stock ownership within tax-advantaged retirement accounts, which now amounts to 30% of all U.S. stock holdings.
Retirement Accounts: A Closer Look
The proportion of U.S. stock held in defined benefit plans has decreased substantially since 1965.
Note: life insurance separate accounts are reserves that fund annuities or life insurance policies.
This drop is partly due to the general decline in private employers offering defined benefit plans. Since these pension plans guarantee employees a set amount in retirement, they present a large long-term funding burden.
At the same time, there has been a corresponding increase in U.S. stock ownership within defined contribution plans and individual retirement accounts (IRAs). This reflects the fact that many investors are facing more responsibility, as they must take charge of their portfolios in order to build a sufficient nest egg for retirement.
The Future of U.S. Stock Ownership
Compared to 50 years ago, the composition of U.S. stock ownership today looks very different.
Foreign ownership has increased as globalization took hold, though it’s hard to say if this rise will continue. Since 2017, foreign direct investment in the U.S. has decreased. Not only that, China surpassed the U.S. as the top destination for foreign direct investment in 2020.
In addition, the shift to particular tax-advantaged retirement accounts has been a relatively recent one. For instance, IRAs didn’t exist before 1978, and defined contribution plans started becoming popular in 1980. As circumstances continue to evolve, how will U.S. stock ownership change over the next 50 years?
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