Stocks 2020: Technology and Consumer Cyclical Sectors Most Profitable with 47% Average ROI

Stocks 2020: Technology and Consumer Cyclical Sectors Most Profitable with 47% Average ROI

Despite the start of 2020 proving challenging for the global economy, the stock market has shown resilience to record significant gains for investors. Some sectors have surpassed projections to record impressive Return On Investment (ROI).

Data presented by Buy Shares indicates that the technology sector is the best performing stock category in 2020 as of December 31 with an average ROI of 49.25%. The consumer cyclical sector is the second-best performing category of the year after recording an average ROI of 46.42%.

The energy sector stocks are the worst-performing with average returns of -35.04%. The real estate sector has also recorded significant losses with stocks recording an average ROI of -5.57% to become the second-worst performing category.

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Technology stock benefit from pandemic

Overall, the 2020 stock market performance was heavily influenced by the coronavirus pandemic. During the first quarter, the stock market crashed but some sectors like technology immediately exhibited resilience to lead the recovery. Consequently, sectors that were heavily impacted by the pandemic’s containment measures have struggled throughout the year.

The technology sector has the highest returns because players in the industry offered solutions to help people manage the pandemic. As more people remained in lockdown, it resulted in an increased demand for digital services like entertainment, communication, remote working, and online shopping. The demand for these services has led to increased revenues resulting in superior stock market performance.

The shift to a digital world has generally created a surge in demand for big tech services causing their stocks to rally.  Shares of the big technology companies led the market out of the bear territory.

The consumer cyclical has also posted impressive returns for the year. The category entails stocks that rely heavily on the business cycle and economic conditions. Players that fall under this category include automotive, housing, entertainment, and retail.

The category was under threat initially following the early economic crash as a result of the pandemic. Many economies went into a near recession. However, stimulus packages from the government to help individuals and businesses have changed the fortunes for consumer cyclical to finish the year strong. Despite the second wave, the sector remained resilient following the successful development of a vaccine. In the third quarter, the vaccine resulted in a  greater positive investor sentiment that boosted their stocks.

Energy sector pandemic’s direct casualty

As technology stocks have made gains from the health crisis, the energy sector is a direct casualty. The sector whose key players entail oil and gas companies recorded losses as the pandemic shuttered the global supply chain. There was oversupply resulting in the lack of storage. The disruption sapped demand and resulted in extreme volatility for oil and gas prices. Furthermore, the demand for oil mainly dropped following the grounding of the traveling industry.

However, the reopening of economies towards the end of 2020 has seen the energy sector bounce back. The recovery led the sector to become among the best performing towards Q3 but the recoveries have not been enough to erase the damage caused earlier.

For 2020, even without factoring in the pandemic, the stock market defied expectations. Major stock tracking indices like the S&P 500 surpassed projections to hit new historical highs. The aggressive economic recovery measures like substantial monetary and fiscal support have acted as a key anchor for growth. Wage subsidies and job retention schemes have also acted a major component for recovery.