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Ok. Got itThe fourth quarter was characterised by improved spirits as US election results were positively received by markets.
Countries across the globe tried to combat the progression of the coronavirus with stricter lockdown measures as winter weather, lockdown fatigue and seasonal celebrations led to rising caseloads. Against this backdrop and a turbulent 2020, both S&P 500 and MSCI Wold indices reached all-time highs.
The fourth quarter was characterised by improved spirits as US election results were positively received by markets while vaccine approvals and rollouts drove expectations of reopening economies and improved activity in 2021.
Emerging-markets assets and forex benefited from a weaker US dollar and increased trade activity, while more risk-taking favoured cyclical-exposure and small-cap stocks. Further monetary and fiscal support from major economies solidified the year-end rally.
A bellwether for increasing activity, the oil price rebounded, with Brent crude trading above the US$50 mark for the first time since March 2020. Added support came from the announcement of an increase in output from OPEC members from January 2021 that was smaller than planned.
The S&P 500 gained 12,1% over the fourth quarter, ending the year up 18,4%. The rebound in cyclical and value stocks in the fourth quarter helped emerging-market returns match developed-market counterparts, with the index gaining 18,7% over the year, while the MSCI World also delivered a robust +16,5%. The standout performers of the year, however, were precious metals, lumber and technology stocks, with the technology-heavy Nasdaq 100 gaining a staggering 48,9% over the last 12 months.
Support from policymakers provided a lifeline for economies, consumers and the markets throughout the year. A dance between monetary and fiscal support repeated and left markets waiting with bated breath. After months of gridlock and a pending change of leadership, US lawmakers finally signed off on further fiscal stimulus to the tune of US$900bn, which would renew and extend unemployment benefits as well as direct payments to households. The US Federal Reserve committed to continuing to buy treasuries at the current rate until ‘substantial further progress has been made’ in the recovery.
After much resistance, EU governments managed to find common ground with member states Hungary and Poland on the rule-of-law conditions tied to the funding of the EU financial support package. Once ratified, this paves the way for a seven-year budget of €1,8trn as well as the €750bn EU recovery fund. Of the funding, 30% will be earmarked for green and sustainable projects, which was complemented with the agreement of new, more ambitious emission targets over the next decade. The European Central Bank also announced an increase in the size of planned asset purchases and extended the implementation horizon into 2022.
On 24 December 2020 the UK and EU announced a post-Brexit deal. The market met this announcement with some apathy, partly due to the timing, but also because some crucial issues, such as the details of market access for financial services, remained outstanding. Nonetheless, this closes a chapter for the kingdom and still spurred the pound sterling to reach a 2020 high relative to the US dollar.
The latest policy maker interventions will serve as a bridge into a new year to smooth over what will arguably be a bumpy recovery ahead. Not letting a good crisis go to waste, this has also opened the opportunity to shape a greener and to a more sustainable future.
With more than 230 vaccine candidates, 18 in phase three testing and six with approval in at least one country, vaccine procurement and rollouts have started in all earnestness. While pricing and agreements are often veiled in nondisclosure agreements, governments are being held to account to facilitate a solution to the pandemic, which has wreaked so much havoc. Although things are far from working out, the process has at least begun.