A Look Back at 2020 Market Structure Themes

Metrics for Equities, ETFs, Multi-Listed Options & Capital Formation

Executive Summary

Throughout 2020, SIFMA Insights wrote several notes updating market structure and capital formation trends (sifma.org/insights). COVID-19 dominated market conversations – first lockdowns stopped economic activity, then markets trended up driven by stay-at-home stock plays and then the focus shifted (and remains) squarely on the distribution of a viable vaccine en masse. In addition to COVID, we had a presidential election, and the rise of retail investing grew to new heights. Needless to say, there was no shortage of activity impacting markets last year. As such, volatility and volumes in both equities and multi-listed options reached, and remained at, new levels.

Importantly, from a market structure perspective, markets remained open and functioning. The financial system and market infrastructure have been very resilient, withstanding record high turbulence, not just measured by volatility but extreme 1,000 point intraday price swings.

Now market participants are wondering what the new normal will be as we move through 2021. Before we can look to the future, we must assess the past. Inside this note, we analyze 2020 trends for volatility and volumes, across U.S. cash equities, multi-listed options, ETFs, off-exchange trading levels and capital formation. We highlight the following metrics and themes for the year:

  • Volatility (VIX): average 29.25 (+90.1% Y/Y), peak 82.69 (+563.1% to Jan. 2)
  • Volumes (ADV)
    • Equities: average 10.9B shares (+55.4% Y/Y), peak 19.4B shares (+150.3% to Jan. 2)
    • Equities Off-exchange trading: average 41.5% of total volumes (+4.2 pps Y/Y), peak 50.4% (+9.1 pps to Jan. 2)
    • ETFs: average 2.0B shares (+44.1% Y/Y), peak 5.6B shares (+278.4% to Jan. 2)
    • Options: average 29.0M contracts (+52.5% Y/Y), peak 47.7M contracts (+120.9% to Jan. 2)
  • Market Performance (Y/Y change, Dec. 31/trough): S&P 500 +10.5%, +67.9%; DJIA +1.9%, +64.6%; Nasdaq +28.5%, +87.9%; Russell 2000 -1.4%, +99.2%
  • Capital Formation: total $388.2B, +70.2% Y/Y; IPOs $85.2B, +74.7% Y/Y; SPACs $82.4B, +510.6% Y/Y

A Look Back at 2020

We start by saying good riddance to 2020 and here is hoping for a much better 2021! Yet, we must take one more look back at 2020, as last year’s performance fuels our questions for what the year ahead holds for markets. It was an interesting year, with volatility hitting new peaks and markets continuing to climb. While many market metrics settled from March highs, some trends continued to close out the year. In particular, volumes in both equities and options remain at levels elevated to historical trends, as does the VIX.

While we go into more detail in each section of the note, we highlight the following trends:

  • Volatility
    • 2020 average 29.25, +90.1% Y/Y
    • Peak to trough spread 70.59 points
  • Equities ADV
    • 2020 average 10.9 billion shares, +55.4% Y/Y
    • Peak to trough spread 13.1 billion shares
  • Options ADV
    • 2020 average 29.0 million contracts, +52.5% Y/Y
    • Peak to trough spread 29.0 million contracts

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Katie Kolchin, CFA
Director of Research
SIFMA Insights