This year has been remarkably positive for global stocks and is set to end on a high and carry on this optimism into next year, even as a devastating virus has gripped the world.
In the US, the S&P 500 gained about 15% this year, Dow Jones 6%, and the Nasdaq 43%, according to MarketWatch. Dow Jones reached 30,000 points for the first time ever in a historic achievement in November, while the S&P 500 has been on a 9-month rise, up 65% from its March low. According to CFRA’s chief investment officer Sam Stovall, this nine-month gain is more than twice the average nine-month gain of 32.2% for all bull markets since World War 2. In the UK, the FTSE 250 index rose by more than 18% in just the last three months of 2020, making this its best quarter since 2009, the aftermath of the 2008 financial crisis, according to The Financial Times.
This week’s developments showcase the year’s promising impact, as the S&P 500, Dow Jones, and Nasdaq all closed on Thursday, 24 December with gains of 0.4%, 0.2%, and 0.3%. Dow Jones and the Nasdaq rose this week by 0.1% and 0.4% respectively, although the S&P 500 fell by 0.2%. Double-digit gains are expected in the final week of 2020, according to CNBC, rounding out a very good year for stocks. In the UK, the FTSE 100 was up by 0.1% after the UK and EU agreed on a post-Brexit deal on Thursday, 24 December after intense, drawn out discussions which had bordered on a no-deal Brexit. The FTSE 250 was also up 1.2%. The pound jumped 0.3% against the dollar to $1.35, and 0.4% against the euro to €1.11.
Much of the year’s uncertainties seem to be coming to an end, gearing up for a grand 2021
“It’s a market that’s on end-of-year auto pilot,” said Mr Stovall.
The onset of the Covid-19 pandemic at the start of 2020 had caused a retreat in global stocks before things picked up in an amazing recovery period from March and made this an exceptional year for stocks. As a report by Bloomberg puts it, central banks greatly reduced interest rates, loans increased, trading continued, high-quality stocks thrived, firms intended to perform in volatile markets prospered, and the top five banks in the US, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup, and Bank of America, set to earn over $100 billion in revenue for the year. Tech stocks have been the biggest winners this year and are set to dominate next year as well. Apple, Microsoft, and Salesforce are the best stocks on Dow Jones this year, up by 80%, 41%, and 39%, according to CNBC.
And with the Brexit deal done, a new US president incoming, and global vaccine deployment in process, much of the year’s uncertainties seem to be coming to an end, gearing up for a grand 2021. Some strategists expect slower pacing and a pullback early in the year, but the general view is that the market ends 2021 higher, according to CNBC.
With a deal now agreed and over four years of Brexit unpredictability finished, the UK market could see a resurgence
Vaccine rollouts in particular lend hope to a return to normal from next year, with expectations of a broad economic rebound once Covid-19 begins to subside in 2021. The coronavirus pandemic has infected over 80 million people and caused over 1.7 million deaths worldwide, with strict restrictions placed on several countries including the UK to curb its spread.
The Brexit deal would be a sigh of relief for the UK stock market, which has been out of favour with investors since the 2016 Brexit referendum, having been the worst performer among major equity markets due to the political and economic uncertainty this caused, according to Bloomberg. But with a deal now agreed and over four years of Brexit unpredictability finished, the UK market could see a resurgence. “We remain positive on UK equity,” Goldman Sachs Group Inc. strategist Sharon Bell said on Friday. Investors felt “an element of relief that one of the main uncertainties for 2021 is clearing”, said Cristina Matti at Amundi.
January 2021 will be an eventful month for the markets. Joe Biden is set to be sworn in as US President on the 20 January, leading to a change in economic policy and coming after the US Senate runoff elections on the 5 January. As reported by CNBC, Democrats winning the Senate could possibly mean, as touted by Biden, higher taxes, which may trigger a market selloff, but also potentially a bigger stimulus package next year, which might lead to a market rally. A Republican win could mean no higher taxes, which might trigger a rally, but may also mean a smaller, if any, stimulus package, which might lead to a possible selloff. Regardless of the outcome, the markets will be moving.