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Virtus Viewpoints - Q4 Kayne Anderson Rudnick

A Year for the History Books

What's Changing in the Stock Market?

At the onset of the COVID crisis, the stock market separated those companies that benefited from a “work from anywhere” environment from those that could not operate effectively during the pandemic. The obvious beneficiaries included primarily large web-based shopping platforms, entertainment streaming services, and web-based conference calling services, while the hardest hit industries included airlines, cruise lines, and hotel and lodging companies. Following favorable vaccine results announced in early November, the stock market started to discount the eventual recovery of the businesses that were COVID casualties, and travel-related companies, retailers, hotels, and casinos staged strong recoveries in the fourth quarter.

After several years of narrowing stock market breadth, we are now seeing broader market participation. As so frequently occurs, the market is looking past the hopefully temporarily rising COVID case counts and focusing on the eventual cessation of this health crisis due to the vaccine efficacy and rollout. Another pandemic relief stimulus bill has been passed, which should help bridge possible short-term economic weakness in the first half of 2021 with COVID case counts at all-time highs.

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Index definitions: Large-capitalization stocks are represented by the S&P 500® Index, a market capitalization-weighted index that includes 500 of the largest companies in leading industries of the U.S. economy. Growth stocks are represented by the Russell 1000® Growth Index, a market capitalization-weighted index of growth-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. Value stocks are represented by the Russell 1000® Value Index, a market capitalization-weighted index of value-oriented stocks of the 1,000 largest companies in the Russell Universe. Small-capitalization stocks are represented by the Russell 2000® Index, a market capitalization-weighted index of the 2,000 smallest companies in the Russell Universe. Developed international markets are represented by the MSCI® EAFE Index, a free float-adjusted market capitalization index that measures developed foreign market equity performance, excluding the U.S. and Canada. The Bloomberg Barclays U.S. Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding with at least one year to final maturity. The ICE BofAML U.S. High Yield Index tracks the performance of U.S. dollar denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market. The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prefunded bonds. The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.

The commentary is the opinion of Kayne Anderson Rudnick. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.

Past performance is no guarantee of future results.

Investing involves risk, including the risk of possible loss of principal.