The year 2020 as a whole could easily be attributed to the COVID-19 outbreak, the resultant lockdown and economic sufferings, but some relief came in the fourth quarter. October 2020, however, saw some solid stock market gyrations thanks to failed stimulus talks, subdued tech earnings and rising coronavirus cases on the global front.
Back-to-back positive vaccine updates and Joe Biden’s win with a divided Congress boosted markets in November. The winning spree continued in December with Trump’s signing of the second round of a virus stimulus deal.
Overall, Wall Street is hovering at record highs with global markets too moving along. The S&P 500, the Dow Jones and the Nasdaq Composite added about 13.2%, 11.9% and 17.3%, respectively, in the past three months (as of Dec 28, 2020).
Against this backdrop, below we highlight a few top ETF stories of the fourth quarter.
Vaccine News
The month of November started delivering sweet surprises to investors in the form of back-to-back vaccine news. Pfizer Inc. PFE and BioNTech SE (BNTX) first came up with an encouraging update on their coronavirus vaccine candidate, BNT162b2, which reflects an efficacy rate of 95%. Moderna MRNA also said that its vaccine was more than 94% effective in preventing the virus. Then, the third good news came from AstraZeneca AZN which said that its vaccine showed 70% effectiveness on average. At the current level, some countries even started applying those vaccines on an emergency basis.
No wonder, economically cyclical ETFs and sectors, that were marred so far this year, got charged up. iShares U.S. Oil Equipment & Services ETF IEZ , SPDR S&P Bank ETF KBE and Invesco S&P 500 High Beta ETF (SPHB) and SPDR S&P Retail ETF (XRT) were some of the ETFs that were immensely benefited.
Small-Caps Made a Solid Comeback
The Russell 2000 Index outperformed the bigger equity gauges by a wide margin as the pint-sized stocks ruled in Q4. The small-capitalization focused iShares Russell 2000 ETF IWM added 35.2% in the past three months, breezing past three other big equity gauges.
Since small-cap stocks are more closely tied to the domestic economy, stimulus hopes and vaccine news boosted the segment more. Hopes of sooner-than-expected return to normalcy have played a role in lifting smaller-capitalization stocks (read: Small-Cap ETFs Outperforming Bigger Peers: Here’s Why ).
Value Stocks Prevailed
The recent gains in Wall Street were based on a value stock rally.In the past three-month frame (as of Dec 28, 2020), SPDR Portfolio S&P 500 Value ETF SPYV has gained 14.0% versus the 11.3% uptick in SPDR Portfolio S&P 500 Growth ETF (SPYG) (read: Value or Growth: Which ETFs to Play Ahead? ).
In November, “the scale of the rotation to cheap “value” stocks from trendy “momentum” names was the most violent on record, eclipsing even the turmoil of the 2008 financial crisis or the bursting of the dotcom bubble,” as quoted on Financial Times . Since there has been a rise in bond yields and value stocks perform well in a rising rate environment, the segment performed well.
Solid M&A Activity
The semiconductor and shale space have been buzzing with mergers and acquisitions. Chip producer Xilinx added solid gains in October on news that Advanced Micro Devices (AMD) may buy the former for more than $30 billion . Then, Marvell Technology (MRVL) announced in late October its decision to acquire Inphi (IPHI) for $10 billion in a cash-and-stock deal (read: ETFs to Gain as Marvell’s Inphi Buyout Creates $40B Giant ).
iShares PHLX Semiconductor ETF SOXX , First Trust Nasdaq Semiconductor ETF (FTXL) and VanEck Vectors Semiconductor ETF (SMH) have been beneficiary of these news.
Also, Pioneer Natural Resources Company (PXD) , one of the largest independent shale operators, announced the buyout of Parsley Energy Inc. (PE) in October.Plus, in October, ConocoPhillips (COP) announced that it will purchase Permian-focused shale oil driller Concho Resources (CXO) for $9.7 billion. iShares U.S. Oil & Gas Exploration & Production ETF (IEO) is an ETF with considerable weight in the above-mentioned companies, making it a beneficiary of the shale mergers.
Bitcoin Soars
As soon as COVID-19 hit the globe, social distancing mandates and fears that notes may be carriers of the virus made the concept of digital currency popular. In October, PayPal Holdings Inc (PYPL) announced that it will allow customers to hold bitcoin and other virtual coins in its online wallet and shop using cryptocurrencies at the 26 million merchants on its network. PayPal’s competitor Square (SQ) also launched support for bitcoin back in 2018 through its Cash app.
While many corporations are accepting cryptocurrencies now, several central banks are also considering the rollout of digital currencies lately. Such moves are positive for bitcoin as the price crossed the $20,000-mark for the first time on Dec 16 (read: Bitcoin Tops $21,000: ETFs to Play ).
Blockchain ETFs like A mplify Transformational Data Sharing ETF (BLOK) gained from the move as “the blockchain acts as the digital public ledger where bitcoin transactions are processed and recorded”.
E-Commerce Winning
While COVID-19 has made e-commerce a winner this year, the holiday season has made it more lucrative. Consumers shelled out about $9 billion (a new record) on the web on Black Friday, up 21.6% year over year, according to data from Adobe Analytics (which tracks website transactions from 80 of the top 100 U.S. online retailers), as quoted on CNBC . As a result, Black Friday 2020 came across as the second-largest online spending day in history in the United States, behind Cyber Monday last year, Adobe indicated.
Cyber Monday 2020 turned out the biggest digital sales day in history in the United States. Thanksgiving Day online sales also hit a record $5.1 billion, up 21.5% from last year, per Adobe, as quoted on CNBC . Amplify’s Online Retail ETF (IBUY) and ProShares Online Retail ETF (ONLN) have added about 100% this year.
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