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Stocks go their own way in a turbulent economy

December 23, 2020

chart depicting how stocks have decoupled from the economy in the best and worst of times

The resilience of the equity market in 2020 has amazed analysts, given the unprecedented challenges that COVID-19 brought to the economy. In March, stocks experienced their quickest bear market on record, but rapidly recovered and steadily hit fresh record highs since August.

Through December 17, the S&P 500® Index has gained 15% for the year, which would be the 27th best year since 1947, nearly cracking the top third of all years. This strong performance occurred despite an estimated 4% decline in GDP growth, the weakest year for economic growth since 1933.

The decoupling of economic and market performance is not unusual in a calendar year, as the chart above shows. What is unusual, however, is that the year leading into the recession was strong; 2019’s growth of 29% was the seventh-best year for the market over the period. This year most closely mirrors 1982, when the market gained 15% despite a decline in GDP of 2%. In 1981, however, the market lost 10%, as the equity market is generally a forward-looking machine. Similarly, in 2009, the market rallied 25% on a 3% decline in GDP, though 2008 was the weakest year for stocks since 1937 at -39%.

This anomaly reflects the speed of the economic and market decline and recovery, in that they both happened in one calendar year, but also the unprecedented nature of conditions in 2020.

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  • This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should discuss their specific situation with their financial professional.

    Except where otherwise indicated, the views and opinions expressed are those of Nationwide as of the date noted, are subject to change at any time and may not come to pass.

    Past performance does not guarantee future results. Current performance may be lower or higher than the past performance shown.

    S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.

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