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Chart of the week

Flexibility important as 2020 leaders become laggards

Stock market leadership YTD has been a mirror image of 2020. Our chart looks this year’s leaders and why active management remains important.

April 2, 2021 | 2 minute read

Stock returns, 2020 and 2021

Source: S&P Dow Jones Indices, as of March 31, 2021. Small cap refers to the S&P Small Cap 600 Index.

  • On the surface, equity markets in 2021 appear to have picked up where 2020 left off: The S&P 500 rose approximately 6.2% in Q1, generating another quarter of strong performance after climbing roughly 12% in Q4 2020 and 18.4% for the full year.
  • While stocks’ 2021 start has been similarly impressive to 2H 2020, market activity this year has been very different. For one, it has been a rockier climb, as stocks have generally moved higher in fits and starts. More substantively, market leadership in 2021 has been a virtual mirror image of last year.
  • The chart shows the performance of three indexes: the S&P 500, which tracks large-cap stocks and has a relatively heavy weighting toward technology stocks; the S&P 500 Equal Weight Index, which places less emphasis on the performance of technology stocks; and the S&P 600, which tracks small-cap stocks.1
  • The chart highlights the S&P 500’s clear outperformance in 2020, driven largely by technology stocks, which were clear beneficiaries as millions of Americans transitioned to working from home and consumed technology products throughout the pandemic.
  • However, macro conditions have evolved in 2021 as economic growth and inflation expectations, as well as the 10-year U.S. Treasury yield, all have reached pre-pandemic highs. Against this backdrop, technology stocks in particular and growth stocks in general have taken a step back. In turn, the equal-weighted index has notably outperformed the S&P 500 this year while small-cap stocks have moved from 2020 laggard to clear leader year to date.
  • Economic and investor sentiment is overwhelmingly optimistic, with consumers expected to go on a services spending spree in the coming months. Rising economic expectations, however, have not lifted all asset classes equally. With this in mind, active investment strategies that allow for significant flexibility may offer the ability to take advantage of rapidly changing market conditions.

  • S&P Dow Jones Indices, as of March 31, 2021.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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