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.

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