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Drawdowns & Melt-Ups: The Year That Was in the Markets

Drawdowns & Melt-Ups: The Year That Was in the Markets

Posted On January 8, 2021 5:02 am
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By Ben Carlson

These were the 2020 peak-to-trough drawdowns for a number of risk assets this year:

  • S&P 500 (SPY) -33.9%
  • Small caps (IWM) -41.1%
  • Foreign stocks (EFA) -33.9%
  • Emerging market stocks (IEMG)  -34.7%
  • Junk bonds (JNK) -22.9%
  • Long government bonds (TLT) -15.7%
  • Aggregate bond market (AGG) -9.6%
  • Corporate bonds (LQD) -21.8%
  • Gold (GLD) -14.0%
  • Bitcoin -52.4%

Despite these awful drawdowns early in the year, every one of these assets finished the year with positive returns, many of the double-digit variety:

  • S&P 500 (SPY) +18.3%
  • Small caps (IWM) +20.0%
  • Foreign stocks (EFA) +7.6%%
  • Emerging market stocks (IEMG)  +17.9%
  • Junk bonds (JNK) +5.0%
  • Long government bonds (TLT) +18.2%
  • Aggregate bond market (AGG) +7.5%%
  • Corporate bonds (LQD) +11.0%
  • Gold (GLD) +24.8%
  • Bitcoin +304%

Basically, everything made money this year despite losing plenty of money along the way.

And getting those gains this year was not an easy feat.

Yes, there were 32 new all-time highs in the S&P 500 in 2020 but there was also an insane amount of volatility.

Take a look at the daily moves in the stock market this year in terms of magnitude:

For context, this is roughly double the long-term historical average for daily moves of 1% or more during a given year. And 1 out of every 10 days in 2020 saw a 3%+ gain or loss, which is more than four times the historical average.

The S&P 500 experienced daily losses of 12%, 9.5% and 7.6%. There were also daily gains of 9.4, 9.3 and 7%. These enormous moves all occurred during the intense March sell-off because volatility tends to cluster during panics.

But it is crazy the entire bear market lasted just 4 weeks from peak-to-trough and we still had one of the most volatile market environments in years.

Living through the 2008 crash was my indoctrination into real market volatility so I thought it would be fitting to compare the two years. Here are the same daily stats from that year:

So 2020 wasn’t exactly 2008 but it was darn close. And the magnitude of the moves in 2020 might be even more impressive (if that’s the right word for it) considering we basically had a 4-week bear market followed by a 9-month bull market.

That 9-month bull market has been a sight to behold. These are the returns from the day the stock market bottomed on March 23rd through year-end:

  • S&P 500 (SPY) +69.8%
  • Small caps (IWM) +99.0%
  • Foreign stocks (EFA) +60.7%%
  • Emerging market stocks (IEMG)  +74.9%
  • Junk bonds (JNK) +34.7%
  • Long government bonds (TLT) -3.9% *the only loser on the bunch
  • Aggregate bond market (AGG) +6.8%%
  • Corporate bonds (LQD) +23.2%
  • Gold (GLD) +21.9%
  • Bitcoin +332.1%

Volatility, of course, works in both directions.

Now here comes the hard part about these numbers. There were still opportunities to underperform.

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About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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