S&P 500, Dow end at record highs as tumultuous 2020 ends

Wall Street closed out a tumultuous year for stocks with more record highs Thursday, a fitting coda to the market’s stunning comeback from its historic plunge in the early weeks of the COVID-19 pandemic.

The benchmark Standard & Poor’s 500 index finished with a gain of 16.3% for the year, or a total return of about 18%, including dividends. The Nasdaq composite, powered by highflying Big Tech stocks, soared 43.6%. The Dow Jones industrial average gained 7.2%, with Apple and Microsoft leading the way.

The market’s milestone-setting finish follows a mostly upward grind for stocks in recent weeks, fueled by cautious optimism that the U.S. economy and corporate profits will bounce back in 2021 now that the distribution of COVID-19 vaccines is underway.

The COVID-19 pandemic shocked markets early in the year. The S&P 500 fell 8.4% in February, then plunged 12.5% in March as the pandemic essentially froze the global economy. Businesses shut down in the face of the virus threat and tighter government restrictions. People shifted to working, shopping and doing pretty much everything else from home.

The dire economic situation weighed heavily on almost any company that relied on direct consumer spending or a physical presence, including airlines, restaurants, hotels and mall-based retailers.

Volatility reigned. The Dow had several day-to-day swings of about 2,000 points. And the S&P 500 rose or fell by at least 1% on twice as many days in 2020 as it did, on average, since 1950.

The VIX, which measures how much volatility investors expect from the S&P 500, climbed to a record high of 82.69 in March and remained above its historical average for much of the year.

The wave of selling accelerated as the economic fallout from the pandemic widened, leaving many long-term investors looking on as their gains after a blockbuster 2019 for stocks evaporated. Five months later, the market recouped all of its losses.

Wall Street’s recovery was due in large part to unprecedented actions from the Federal Reserve and Congress to support the economy. Investors also flocked to big technology companies such as Apple and Amazon and smaller companies including Grubhub and Etsy that were poised to take advantage of the shift to working and shopping from home.

The S&P 500 jumped 12.7% in April. From there, markets disconnected from the rest of the still-reeling economy and pushed higher in fits and starts as vaccine development progressed and analysts and economists looked ahead to the eventual end of the pandemic.

Even as the stock market charged ahead as the fortunes of larger companies improved, millions remained out of work and many small businesses around the country, such as bars and restaurants, remained closed or limped along at a fraction of their usual capacity.

Individual investors, sometimes referred to as retail investors on Wall Street, hopped onto the market rally via commission-free online trading platforms such as Robinhood. Along the way, they helped power shares in companies like Tesla to new heights. The electric car maker jumped 743.4% in 2020 for the biggest gain in the S&P 500.

The market’s turnaround was faster than anyone might have expected in March, when the S&P 500′s nearly 11-year bull-market run ended. By August, the index had recovered all its losses and climbed to new highs, rewarding investors who had stuck it out. All told, the S&P 500 set 33 record highs in 2020.

The end of the virus and its pummeling of the economy seems even closer now that vaccine approval and distribution are ramping up. The U.S. and Britain have both approved Pfizer’s COVID-19 vaccine, and Britain recently approved another vaccine from AstraZeneca and Oxford University. Meanwhile, the U.S. government has approved another round of aid for businesses and people dealing with another surge in the virus and tighter restrictions on businesses.

Markets were mostly quiet on the final day of trading for the year. Several overseas markets were closed for holidays, and U.S. markets will be closed for New Years Day on Friday.

The S&P 500 rose 24.03 points, or 0.6%, to 3,756.07, an all-time high. The Dow rose 196.92 points, or 0.7%, to 30,606.48, also a record high. The Nasdaq rose 18.28 points, or 0.1%, to 12,888.28.

The Russell 2000 index of smaller companies fell 5.14 points, or 0.3%, to 1,974.86. Smaller companies notched strong gains in recent weeks after lagging in the early months of the broader market rebound. The Russell 2000 ended the year with a gain of 18.4%.

The yield on the 10-year Treasury note rose to 0.92% from 0.91% late Wednesday.