You don’t need me to tell you that 2020 has been a year like no other. This is also true of the stock markets from dramatic falls in March to an all time high on the US Dow Jones index in late November.

As we head into the final weeks of 2020, capital markets are breathing a sigh of relief. There has been a barrage of positive developments over the last month and global equity markets were seeking reasons to keep going higher. Volatility has largely levelled off in the equity markets following the removal of uncertainty with the US election results & recent vaccine news.

November has been particularly busy with a new president elect in Joe Biden and several vaccines announced.  And the markets reacted positively to both.

Firstly, On the US election front, the General Services Administration recognizes Biden’s win over Trump by over 6m votes and 306 electoral college votes to Trump’s 232 and was seen favourably by markets. President Trump is yet to concede, however, the Electoral College meets on December 14th and will cast their votes based on the certified results of each state. Ultimately, the long-term effect on capital market returns, of which political party is in power, is negligible.

The more significant news though for global equities has been the announcements of effective vaccines by both Pfizer–BioNTech and Moderna. This has created a wave of optimism among equity markets across the globe.

Stocks that were adversely affected by the pandemic like airlines, banks and energy companies rebounded strongly. One high profile example of this is IAG, owner of British Airways, who saw their share price rise 40%, however, this needs to be seen in the context that the company is still down more than 60% this year.

Some commentators are suggesting that those who get vaccinated deserve more freedom and governments, airlines, and employers may restrict movement of people who have not been vaccinated.

In the US the markets have been more resilient through the pandemic – perhaps because of the premium Covid has put on tech and healthcare stocks, which are more heavily weighted in  US markets meaning US stocks are still generally ahead of European stocks for 2020.

Most major economies will be in recession this year except for China which is expected to expand 2.1% in 2020. It is likely that sentiment remains cautiously optimistic heading into 2021, as the global economic recovery continues. While the global economy is expected to contract 4.2% this year, real GDP growth is expected to grow by 4.2% in 2021 and reach pre-pandemic levels by year-end, according to the OECD.

This year has been a roller-coaster due to continuing lockdowns and the impact of these restrictions on the economic recovery. Unprecedented levels of fiscal & monetary stimulus across developed nations are expected to continue with bond yields remaining at historic lows for the foreseeable future.

Risk-appropriate balanced portfolios and staying the course proved to be a successful strategy during the pandemic-related economic storm that we faced in 2020. The antidote continues to be globally diversified balanced portfolios and probably a higher allocation to equities than otherwise historically required in pension portfolios. The US equity markets have outperformed international markets over more than a decade. As markets and valuations return to the mean we can expect international equities to outperform the US again in the relatively near future.

Mark Donnelly