Our economy was left under unprecedented siege in 2020, with unemployment rising to nearly 15% in April and the stock market falling around the same time. Somewhat surprisingly, the broader stock market recovered in December, with the S&P 500 yields 15.5% for the year.
While the S&P together returned positive returns, several equities within the index suffered significant losses. Of the best-performing stocks during 2020, there was a concentration of them in the cruise line and traditional energy sectors. Can these sectors and their stocks recover in 2021? Let’s see.
Oil spill
The ten stocks that perform the worst on the S&P 500 for 2020 contain a large number of oil and other traditional energy supplies. Among them were Occidental Petroleum Corporation (NYSE: OXY), Marathon Oil Corporation (NYSE: MRO), Diamondback Energy (NASDAQ: FANG), en ONEOK (NYSE: OKE) – everyone loses about 50% of their respective values throughout the year. This should come as no surprise, as the demand for transportation and travel has declined sharply, affecting the need for oil and other traditional fuel resources. Furthermore, the offer levels continued, which pushed the shares further.
While it is reasonable to expect that the journey will gradually recover throughout the year, the traditional energy industry is facing great competition from cleaner, more sustainable businesses. Many investors, especially those of younger generations, have ethical concerns about investing in any business that harms the environment. If we think of companies that are likely to grow far into the future, those that promote dependence on fossil fuels are at the bottom of the list. The stocks may recover in 2021, but do not expect much of them as long-term buy-and-hold.
Sailing after a loss
The cruise industry suffered as much in 2020 as with Norwegian Cruise Line Holdings (NYSE: NCLH) and Carnival Cruise Lines (NYSE: CCL) both lose more than half of their respective values. It seems that people are not claiming near residences on a vessel that is offshore when the world is in the air from a respiratory pandemic. I’m no soothsayer, but it goes without saying that without the overhaul of the industry and new large-scale disinfection methods – coupled with public procurement – turbulent waters are ahead for most cruise industries.
CCL data by YCharts
What is even less encouraging is that the explosion of the vaccine has taken significantly longer and is much more complicated than originally expected. On top of that, it was just a challenging task to convince the public that vaccines work. As these companies have suffered huge losses and incurred significant debt to continue, I will not have confidence in the 2021 recovery. This is not to say that they will definitely never recover, but that at the moment you will be having a hard time finding a more beleaguered industry.
Image Source: Getty Images.
Do not worry if they do not recover
The understated beauty of the S&P 500 index lies in its self-cleansing nature. If the value of a business falls to the point where it is no longer eligible for inclusion in the index, it will be replaced. It is likely to be replaced by a faster growing company with better long – term prospects that justifies the inclusion of benchmarks. This is another reason why simply the index itself will be more stable over long periods of time than constantly trying to predict winners for the next year.
Instead of analyzing single stocks within specific sectors, you can consider a buy-and-hold approach of some cheap, broad market index funds (such as an S&P 500 index fund) that cover the global equities environment. This approach is likely to save you a lot of time, effort and mental energy, and as was the case in 2020, it offers a solid return to investors.