Ending the year with growth
The US stock market ends 2020 on an upswing despite the COVID-19 pandemic.
The Standard Poor's 500 Index jumped 66% from this year's low in March, the early days of the pandemic. Leading the gains were shares of Tesla (NASDAQ:TSLA) Inc. up 691% in 2020, fuel cell developer Plug Power Inc. (+1000%), and video conferencing service Zoom Video Communications Inc. (+451%) and Moderna (NASDAQ:MRNA) Inc. (+532%), which created a vaccine against COVID-19.
One financial analyst said: "A lot of people are projecting the recent past into the future, expecting a market that is already up significantly to continue to rise. We've seen it end in the past, and it doesn't end well".
"One worrying signal is the rise in margin account debt", The Wall Street Journal writes. This rose to a record $722.1bn in November, surpassing the previous record set in May 2018 ($668.9bn). In the past, the rise in margin debt has preceded periods of heightened volatility this was the case in 2000 and 2008.
Many investors use margin accounts to trade stock options, and this market was on the rise in 2020. According to Options Clearing Corp. the average daily number of options trades reached a record 29 million this year, up 48% on 2019 levels.
Options allow investors to bet on the rise or fall of the stock market, and are also used by traders to hedge the risk of a stock market decline. Using some of the risky strategies, traders can lose money invested in options.
Many investors have been able to make good profits on stocks this year, but there have also been those who have suffered large losses, which is due in particular to the riskiness of the investments, including their concentration on individual stocks and the use of options.
