Just as western countries seemed to be overcoming the pandemic, US President Donald Trump reignited tensions with China, blaming the country for the spread of the virus. Meanwhile, the prospect of a “hard” Brexit returned as negotiations between the UK and the EU ended without the two sides making progress towards a free trade deal by the 30th June 2020 deadline to extend the transition period.
The third quarter of 2020began on a positive note as the EU agreed a package of support measures worth €750 billion to offset the economic impact of the pandemic, while earnings season got off to a strong start thanks to US banks.
The full effect of the pandemic emerged in August 2020 as the UK, EU and US released figures showing the extent to which their economies contracted in the second quarter of the year. However, there were encouraging signs of growth in June and July as lockdown restrictions eased.
Any optimism proved short-lived as rising infection rates across Europe called into question the endurance of the nascent economic recovery and stock markets headed lower. Later in September 2020, the pound weakened against the US dollar as the UK government threatened to alter the Brexit withdrawal agreement by introducing the Internal Market Bill.
Campaigning for the US presidential election picked up in October 2020. However, the market’s main concern was when US politicians would agree a further economic relief package. Meanwhile, the pound fluctuated against the US dollar as the UK threatened to walk away from Brexit talks, but both parties acknowledged the need to make concessions, and they returned to the negotiating table.
The UK went back into lockdown in November 2020, but there was better news for markets later in the month. Several companies reported successful trials of vaccines for the coronavirus, while Joe Biden emerged as the winner of the US presidential election.
2020 ended positively for the markets as the UK and EU sealed a free trade deal, US politicians finally agreed on a further round of economic support measures and the roll out of the coronavirus vaccine began.
2021 got off to a good start after the Democrats won a majority in the Senate (the upper house of US politics) givingPresident Biden a strong mandate to increase government spending. However, the rising number of new coronavirus cases around the world weighed on the markets.
The fall in infection rates and the rapid vaccination rollout continued to drive markets higher in February 2021. Stock markets closed the month with positive returns, despite a drop towards the end of the month. The rotation in favour of value and small caps continued as a result of the expected post-pandemic normalisation and rising bond yields.
Economies around the world are recovering unevenly from the pandemic. China has led the pack because it suppressed the virus quickly. The US and UK are rebounding owing to a combination of fiscal stimulus measures (Rishi Sunak’s Spring Budget and Joe Biden’s stimulus package) and efficient vaccination programmes. In contrast, the European Union has yet to put its relief fund to work and many countries are struggling to contain a third wave of the virus.Investors remained concerned about inflationary pressures as economies reopen.
In April 2021, expectations foreconomic growth turned from forecast to reality, as we began to see positive economic indicators as a result of the reopening of economies. Equity markets had another strong month fuelled by hopes of a rapid rebound in global growth. Covid-19 vaccine rates in the US and the UK have continued to proceed well. In continental Europe, after a difficult start to the vaccine campaign it’s been encouraging to see that the pace of vaccination has accelerated significantly throughout the month.
The investments held in your portfolio are spread across different regions and, depending on your attitude to risk, a range of assets. This diversification reduces the impact on performance of any individual event like the coronavirus crisis as assets react in different ways. We take a long-term approach to investing, and we do not let short-term events force us into making decisions about how we manage your portfolio.
Robert Jeffree
Chief Investment Officer, Omnis Investments
In summary
- Tensions between the US and China resurfaced later in the year as US President Donald Trump blamed China for spreading the coronavirus;
- Brexit negotiations restarted after the worst of the pandemic appeared to be behind the UK and the EU but failed to deliver any concrete outcomes, and the deadline to extend the transition period expired;
- Technology shares, which had been driving the markets since the correction earlier in the year, sold off at the start of September;
- The US presidential campaign started to weigh on the markets in October, as politicians struggled to agree on the terms for a new economic relief package;
- Brexit negotiations intensified after both sides acknowledged that they would have to make concessions to conclude a free trade deal before the transition period ends on 31stDecember;
- After a close-run race, challenger Joe Biden won the US presidential election, although President Trump refused to concede;
- In November, several companies developing vaccines for the coronavirus reported successful trials;
- There was a positive end to 2020 for the markets as the UK and EU sealed a free trade deal, US politicians agreed on another economic relief package and the roll out of the coronavirus vaccinebegan;
- 2021 got off to an encouraging start after the Democrats wona majority in the US Senate, increasing the chances of a boost to government spending.
- Rapid vaccination rollout drove markets higher and despite a drop towards the end of the month, stock markets were up during the month of February;
- Rapid vaccination and fiscal stimulus bode well for the US and the UK. In the EU, many countries struggle to supress a third wave of the virus.
- Macroeconomic data is backing up the market’s optimism, with mounting evidence that the recovery from the coronavirus pandemic is in full flow – although it has got going in some places faster than others.