Economic and Financial Commentary (2020) The year 2020 was a very unusual one for investments and the economy. Historically, most equity bear markets last between 6 months and three years. The 2020 bear market lasted exactly 40 days and was followed by a swift recovery. From the highs of February to the lows in March, the Canadian, U.S., international developed and emerging markets have lost 37%, 27%, 27% and 26%, respectively (in CAD). The massive global rally that followed was capped in November by the announcement of several COVID-19 vaccines, to such an extent, that all four markets ended the year with positive returns. Meanwhile, the negative market reaction that some observers were fearing in the aftermath of the U.S. election did not materialize. Despite the inevitable recession that followed last Spring’s lockdown, the massive government and central bank support programs launched in response to the crisis worked as intended and helped weather the storm, especially in North America. The U.S. GDP fell 3% for the 12 months ending in September, but retail sales were up 2.5% and home prices gained 7%. The Canadian GDP has dropped even more, at -3.5%, while at the same time, retail sales rose 7.5% and home prices surged by 9%. As of the end of this challenging year, the Canadian economy has already recovered an impressive 80% of the 3 million jobs lost during the March-April lockdown, compared to only 55% for our neighbours to the south. 2020 has closed on an upbeat note for fixed income and equity markets. Here are our observations on asset-class returns (in Canadian dollars) for 2020: Short-term and total market Canadian bond indices produced solid 5.3% and 8.7% returns, respectively. Canadian equity delivered a 5.6% return. U.S. stocks generated a 18.8% return in Canadian dollars and a 20.9% return in U.S. dollars. International developed market stocks delivered a 5.9% return in Canadian dollars and a 0.8% return in local currencies. Emerging market equity generated a 16.6% return. Growth stocks massively outperformed value. For large and midcap stocks, growth outperformed by a margin ranging between 20% (international developed markets) and 35% (U.S.). Small cap stocks beat the total market indices in Canada, international developed and emerging market, but underperformed in the U.S. 2020 was a good reminder of several investment principles. First, investors should not be surprised when stock prices plunge. Markets will slump by 20% or more about once per decade, sometimes more frequently (like the 2000-02 and 2008-09 bear markets, for example). This is a fact of life for long-term investors. Secondly, diversification may be boring, but it works. Compared to a concentrated portfolio, a diversified one entails that investors accept to sacrifice the hope for large short-term profits in exchange for far more reliable long-term returns. Finally, focus on the right things. At PWL, we are there to help you build long-term wealth. We’re not particularly sensitive to the short-term market fluctuations because they only serve as a distraction from the important thing—reaching your financial objectives. In 2021, we will stick to our wealth management strategy, which is to diversify portfolios with thousands of securities, to capture the market’s rate of return and minimize costs and taxes as much as possible. Raymond Kerzérho, CFA Director of Research