Shares continued their rise in 2021 on Friday, with all three major market indices.
The Dow Jones Industrial Average, S&P 500, en Nasdaq Compound everyone spent time in a negative area during the day, but a late push strengthened them to set a trio of records of all time.
Data source: Yahoo! Finance.
The strong Friday session concluded an extremely healthy first week of the year for the stock market. Some optimistic investors are now wondering if 2021 could be an even better year for markets than 2020.
Weekly gains for markets
If you add up the performance for the week, the Nasdaq has reigned supreme again. All three benchmarks rose between 1.5% and 2.5% for the week, and the Dow lagged behind as it did last year.
^ DJI data by YCharts.
Obviously, if you project the returns for a year of 52 weeks, you can make all sorts of crazy conclusions. Despite the tremendous positive momentum we saw in 2020, there is simply no way the stock market is going to rise as fast as this week.
The good news, however, is that the rise in equities has so far been extremely broad:
- Some of last year’s favorite stocks kept pace with the new year. Crowd favorite hydrogen fuel cell specialist Plug power (NASDAQ: PLUG) increased by 57% in the first week of 2021, for example.
- Other stocks in areas that do not usually have large performers also performed well. Industrial stalwart American steel (NYSE: X) picked up 32% to start the year.
- Marijuana shares have started to launch in 2021, with election results sparking enthusiasm over the possibility of federal decriminalization of cannabis. Cronos Group (NASDAQ: CRON) rose more than 30% this week, and other pot shares made significant gains.
- Even a long-forgotten former high supplier got back some of their mojo this week. 3D systems (NYSE: DDD) rose more than 125% when the company managed to sell a side business, saying sales for the quarter were much better than most expected.
There is great excitement in the investment community. Whether this will lead to huge profits after the first week of the year depends on several factors.
Image Source: Getty Images.
Late 2020
The key question in 2021 is whether companies will strike back in full due to the economic disruption of the COVID-19 pandemic. If the US can administer vaccines efficiently and quickly, the chances of fighting the coronavirus will improve, potentially making favorable comparisons for 2021 with the 2020 numbers of the pandemic. If the vaccination program stops and the number of cases remains high, it could be even worse this year than 2020.
In addition, investors should keep in mind that the beat of the market depends on the market you are talking about. The Dow rose less than 10%, even after taking dividend earnings into account, the S&P nearly doubled profits by 18%, and the Nasdaq rose nearly 45% on a total return basis. It’s more likely that we’ll see 2021 returns in our teens, than that we’ll get another 40% to 50% jump.
Despite gains last year, many stocks ended up sharply lower than last year. For them, even a great achievement is to even return. Meanwhile, high-yield high-yield providers would have built up great hope last year, but keeping a high share price would be a profit for long-term investors.
2021 has started strong, but there will inevitably be bumps in the road. We hope we all have a happy, healthy and prosperous year no matter what the stock market does.