Ravenscroft Group | Jonathan Gollop
04 Jan 21
Weekly update - 2020, a brief summary...
Many of us will be happy to see the back of 2020, it has been a challenging and eventful year that has seen the global population in lockdown, wildfires in Australia, protests around the world, the UK leaving the EU and Donald Trump losing his place at the White House.
When talking about 2020 and the events that have occurred this year it is impossible to leave out the Covid-19 pandemic. There is no denying it has been the most significant factor when we look back at the previous 12 months. So much so that the US elections and Brexit negotiations have barely caused a ripple in what has been a vast coverage of Coronavirus and its impact on global economies and financial markets.
The speed in which the virus was able to spread rocked the global economy and caught most of the world by surprise. Most of us anticipated this to be a short and isolated incident and could never have imagined just at what scale this would grow to. Covid-19 has highlighted the threat of contagious diseases and made us aware that these diseases still pose a very real threat to our society as a whole.
The pandemic has resulted in an acceleration of existing trends and helped drive scientific and social innovation. As the world moved into lockdown, our technology and social interactions had to adapt with it. We have seen a digitisation of everyday life, a move to more flexible working and of course, a severe deceleration of globalisation as overseas travel was largely put to a halt.
There is plenty to look back on as we draw this year to a close and whilst there has been many significant events throughout the year, it is the final months of 2020 that will likely be remembered as a key turning point. There are many reasons why Q4 has been important but perhaps none more important than the realisation of at least three potential Covid vaccines. Markets have been encouraged by the concept of an end to the global pandemic and the significant economic impact that accompanies it. This change of investor sentiment leaves plenty of optimism as we move into 2021.
Strangely enough the year is actually finishing where it started, with stock markets broadly back where they were at the start of 2020 or in some cases notching all times highs. This is somewhat a surprising fact given we have endured one of the worst global pandemics in recent history and the extremely short but sharp falls that accompanied it. Starting and finishing a year with positive markets is not uncommon, but adding a brief and sharp market shock in the middle of that certainly is.
The US equity market endured its shortest ever market fall, large enough to be categorised as a bear market, which lasted just 33 days (1) before progressing to its third fastest recovery to a breakeven level in September taking just five months. After 5 months of progressive recovery we of course experienced a very minor correction in September with markets suffering something of a setback. This correction was short lived and markets were soon back on track to continue with their progressive recovery to date.
You cannot overlook the significance of the impact that this pandemic has had on the global economy and how truly exceptional this year has been. The global lockdown during the first wave of the Covid-19 pandemic resulted in the strongest economic contraction in modern history. Most economies were able to recover fairly quickly, but a second wave of Covid-19 set the economy back again.
It was a strange time indeed as in Q2 we saw the world go into different variations of lockdown, which resulted in the deepest quarterly GDP contraction on record. But as the weather started to improve and cases began to drop, we saw the global economy fight back with the sharpest quarterly rebound on record thanks to lockdown restrictions easing and fiscal and monetary stimulus kicking in. Markets have continued to press forward despite ongoing uncertainties around the virus and large parts of the world moving back into lockdown due to an increase in cases and new strains of the virus being identified. Whilst the news around increasing cases is of course negative, there is comfort in knowing that there are multiple vaccines now already being distributed and many believe that whilst we are not quite in the clear, the end is certainly in sight.
Financial markets have barely reacted to this more recent increase of cases and this can largely be attributed to the markets interpretation that the initial impact of the virus in Q2 was an isolated incident and more of a shock than something fundamentally wrong with the economy.
US markets have surged over 60% (2) since its March low, where we saw a drop of 34% (3) and is on track to finish the year 14% (4) up, which is certainly not something the majority would have expected if asked the question during the height of the crisis earlier in the year, or even if asked at the end of 2019, where markets were also enjoying great success. Most analysts had forecast a slower rate of growth and an increase of just 5% and that was without any knowledge of what was to come so the fact that we have seen such high returns just highlights the resilience of the stock market.
All in all, 2020 whilst a year most will be happy to see the back of, has been one that produces one of the most impressive performances/recoveries of global markets on record. It has allowed for a healthy retraction and recovery and enabled us to press forward into 2021 with optimism and positively for continued growth moving forward. Coronavirus will still play a part in our lives in the months to come and there is some way to go before we can really start to see things move back to “normal” but one thing is for sure, with the distribution of the vaccines increasing and the virus impact on financial markets reducing, we have plenty to look forward to in the new year.
(1) Days between Standard & Poor's 500 (S&P 500) Index’s price peak and trough in 2020
(2) Total return of S&P 500 price performance from trough in Market to 31st December
(3) Total return of S&P 500 price performance from peak to trough in 2020
(4) Total return of S&P 500 price performance from 31st December 2019 to 31st December 2020