Despite the severe crisis, 2020 turned out to be a good year for many assets.
- The S&P 500 index increased by 17% (from 3226 to 3768).
- The Nasdaq Composite index increased by 44% (from 9151 to 13201).
- Gold‘s price increased by 24% (from $1560 to $1940). It also broke its old 2011 record and established a new one in August, at $2051.
- The highest growth was shown by bitcoin, as its price increased fourfold, or by 303% (from $7,200 to $29,000). This is more than the growth of S&P and gold over the last 10 years combined.
- Various altcoins grew by an even larger factor. In particular, Ether’s price increased by a factor of nearly 6 (from $130 to $745).
- Tesla’s stock price grew by an even larger factor than bitcoin and Ether, namely 6.5 (from $130 to $850).
On the other hand, a definitely negative trend was shown by the oil price (-28%) and the US dollar’s DXY index (-8%).
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
Recalling The Key Events In 2020
Let us recall the key events that occurred during that year, how the global economy managed to avoid catastrophic consequences.
First phase of the US-China deal. Growth of the COVID threat.
In January 2020, prolonged negotiations led to the ratification of the first phase of the US-China deal. It put a temporary stop to the tariff war, which was wearing down the economies of both countries. The US stock indices established new records.
At the same time, the escalation of the COVID outbreak in China started threatening the global economy. The quarantines around Wuhan caused many factories there, including Western ones, to close. Even Apple’s production facilities were in danger.
The beginning of the COVID panic and the mass sale of assets. Strict quarantines as a possible solution.
In February, the stock indices continued to set new historical records. S&P was nearing 3400, and bitcoin’s price exceeded $10,000 (even though it only at $7,000 at the beginning of January).
However, the second half of the month showed that the outbreak was starting to spread beyond China. New cases started appearing on a massive scale in other countries. The index rally gave way to a drop, and cryptocurrencies and gold became part of the mass sale panic.
Meanwhile, the strict quarantines in the affected regions of China bore fruit. The daily number of new cases started to drop. It became clear that similar measures may be necessary in other countries as well, which would require many production facilities to stop working.
Oil price war between Russia and Saudi Arabia. Unprecedented market crash. The US decision to support its population financially.
The COVID crisis affected the oil prices negatively, as the quarantines reduce the demand for fuel. To keep the oil prices up, the OPEC+ countries discussed the possible decision to reduce oil production dramatically, but Russia and Saudi Arabia could not reach a consensus. Saudi Arabia adopted a dumping policy, and the oil price quickly dropped from $50 to about $20.
The WHO officially announced that a pandemic was ongoing. This accelerated the market crash, which reached the bottom in mid-March. Compared to the maximum in February, the capitalisation of the stock market dropped by about a third. At the bottom, the cryptocurrency market lost about 60% of its capitalisation, though it recovered most of its losses rather quickly. If the BTC price was over $10k in February, in March it fell as far down as $3,800.
Soon after the pandemic announcement, the US government informed the public of its plans to support its citizens and companies financially. The Federal Reserve lowered the federal funds rate to zero and effectively started printing new money. By the end of this year this would cause the world dollar supply to increase by more than 20% (several trillion dollars), which would harm the investors’ confidence in the dollar, but in March these measures helped to stop the market crash.
Global quarantine experiment. Teleworking boom and general IT boom. An unprecedented oil consumption reduction and a new agreement between the OPEC+ countries.
By April, most of the world’s countries instituted quarantines of varying strictness. The first thing the restrictions aimed to do was reducing the number of mass gatherings. Many entertainment centres and educational institutions stopped working, and the operation of companies that required on-site presence of the staff was severely restricted.
Many companies were forced to reassign their employees to online jobs. It became clear that teleworking is a much more viable format in many situations than traditional employment, which means that it is likely to remain popular even after the pandemic. As most of the market was deeply in decline, the growth of the companies that were in demand during the quarantines (or at least remained unharmed by the quarantines) became especially obvious. The IT giants that enabled communication and media entertainment were in a particularly advantageous position. The producers of the tools that enabled telework organisation, such as ZOOM, became the main heroes of this period. The price war on the oil market ended, and the OPEC+ countries agreed to reduce the worldwide oil production by nearly 10 million barrels per day, which would allow oil prices to return to around $40. In the meantime, the quarantines caused the world oil consumption to fall by an unprecedented amount of 20-30 million barrels per day.
Bitcoin halving. Bitcoin as a hedge.
By May, bitcoin had largely recovered from the crash and for a short while its price was nearing $10k. The crypto market showed a much faster recovery rate than the stock market: by the beginning of May, the S&P 500 index recovered just over half of its lost value. For the first time in history, a cryptocurrency showed itself as a hedge against the stock market crash, even though previously it was considered a risky asset that was to be first to sell off. Some of the reasons for such quick recovery of the crypto market were the US dollar falling out of favour due to the Federal Reserve’s policies, and the imminent BTC halving.
The halving of BTC mining in May (to 1.8% per year) was programmed far in advance. This reduced the new coin supply from the miners, as well as the chance of new severe crashes: at prices below $8,000 the miners would refuse to sell the coins, as that would simply become unprofitable. The bitcoin price stabilised at $9,000-$10,000 for a long time.
New records from NASDAQ, S&P 500, and gold. Tesla’s rise. The easing of the quarantines and vaccine testing.
Out of the three main stock indices in the US, NASDAQ Composite was the first to recover, as it represented much of the IT industry and many other innovative companies. Starting with June, it set new historical records several times, and by the end of the summer it approached 12,000. In August, the S&P 500 index also recovered from the fall, and approached 3,800 by the end of the summer.
An interesting trend was shown by gold. Even though its price dropped slightly in March along with other assets, it started increasing again soon afterward, and broke the 2011 record in the summer, which remained unchallenged for 9 years. In August, gold set a new historical record, as its price reached $2,051 per troy ounce. Starting with June, Tesla’s stock price soared. If a Tesla share cost $130 at the beginning of the year, by July it cost as much as $286, and by August it cost almost $500. One of the factors that caused this growth was the company’s promising second-quarter earnings report. However, this growth also caused Tesla’s stock to be overvalued, and some experts consider it a bubble.
Many governments eased their quarantines during the summer. The past 2-3 months of strict quarantines showed inconclusive results. On the one hand, they helped to stem the spread of the disease. Several countries showed an infection rate that was several times less than before the quarantine. On the other hand, they were extremely harmful to both the economy and the citizens’ mental well-being. Moreover, the quarantines were unlikely to stop the pandemic entirely: even if the number of new cases in one country (but not in the rest of the world) dropped to zero, opening the borders would cause a new outbreak. Easing the quarantines did indeed cause an increase in the number of new cases, but the infection rate was still lower than in the spring.
The development of COVID vaccines was highly successful. The summer saw several companies testing their own vaccines. In August, the world’s first COVID vaccine, Russia’s Sputnik V, was registered, though initially it faced strong criticism due to the tests not being transparent enough. In the West, the main competition was between Pfizer-BioNTech, Moderna, and AstraZeneca.
September and October
Market correction. Second wave of COVID. Trump getting infected. PayPal’s cryptocurrency integration and the start of the crypto rally.
In September, many participants of the market decided to cash in their earnings, which led to the stock and cryptocurrency markets dipping. The S&P 500 index dropped from nearly 3,800 to 3,200. The fear of the second wave of the COVID pandemic, as well as the highly uncertain outcome of the presidential election in the US, prevented these two markets from resuming their growth. People grew tired of being afraid and did not welcome new quarantines, but the second wave turned out to be stronger than the first one. By the end of September, the worldwide number of COVID deaths exceeded one million. In some countries, the infection rate kept growing even during the summer. At the same time, the world was still 1-2 months away from the start of mass vaccination.
Donald Trump was among the people infected at that time. New experimental anti-COVID drugs were tested on him, and this led to the president recovering relatively easily. For a while it seemed that this would increase his chances of winning the election, as he was a hero who willingly became a test subject for the sake of his people. Trump was generally seen as the better candidate for the stock market, as he had long used all the means available to him to support the market’s growth. Biden, on the other hand, was expected to be more generous in supporting the American population, but at the same time he was expected to introduce new taxes. Despite everything, by November it was Biden who took the lead. As S&P increased back to 3,500 after the correction in September, it dropped back to 3,300 by the end of October. Aside from Trump’s low approval rating, what also hurt the stock prices were the problems with the upcoming stimulus package: despite all promises, the Democrats and the Republicans could not come to an agreement about the package’s size.
The PayPal company announced its intent to include four cryptocurrencies – BTC, LTC, ETH, and BCH – into PayPal accounts. This was intended to allow American users to buy cryptocurrencies as easily as euros or pounds sterling. The prospect of the imminent growth of the cryptocurrency prices, as well as further growth of the dollar supply in the world under Biden, convinced many investors to buy cryptocurrencies. Their role as a hedge after their quick recovery in the spring contributed greatly to those decisions. In October BTC’s price rose from $11,000 to nearly $14,000, and the other three cryptocurrencies also grew in price significantly.
November and December
Biden’s victory. The weakening of the dollar. Bitcoin’s new record. The beginning of mass vaccination.
The expectations proved true: Biden won the election. Despite that, the stock market’s reaction was remarkably positive: it started recovering quickly after the dip in late October. The greater certainty of the political climate, and the lack of Democratic majority in the Senate, which would prevent them from introducing new taxes, gave the investors more reason for optimism. Pfizer-BioNTech and Moderna finished their tests in November. Both vaccines were approved in the US and the EU in December, allowing them to start a mass vaccination. At the same time, the dynamics of the pandemic itself forced many countries and regions to reintroduce tighter restrictions comparable to those in the spring. These countries and territories included France, Germany, Austria, the UK, and some US states. Despite that, the anticipation of relatively quick results from the vaccination allowed the stock market to continue growing. Dow recovered from the drop during the crisis, and soon afterward all three key stock indices set new records.
The US dollar came under serious pressure. Its DXY index dropped to its minimum value over the past 2.5 years. The dollar devaluation became a reality, rather than a remote threat. Citibank announced that the success of the vaccines and the revitalisation of the economy mean that the dollar will devalue by 20% in 2021, while bitcoin will grow by up to $300k. A number of major players such as Micro-strategy admitted that they invested millions of dollars into cryptocurrencies. The crypto market rally sped up dramatically.
In December, BTC broke its old 2017 record (around $20k) and set new records. By the end of the year it reached an unprecedented value of $29k, and at the beginning of the next year it reached $42k. Right before the New Year, the Democrats and the Republicans were finally able to agree to a small stimulus package of $900 billion. This was a welcome New Year present for many Americans in need