Happy, or should we say Hopeful, New Year has rarely seemed such an apt phrase. Obviously 2020 was a horrendous year for the majority of people, hence it’s good to have the last 10 months in the rear-view mirror. Entering 2021, hope that both society and the economy will evolve towards normalization in as timely a fashion as possible is a widespread theme. Ironically, it was a record year for financial assets, as Wall Street feasted while the rest of the world suffered. Governments everywhere tabled previously inconceivable amounts of fiscal stimulus, while monetary authorities definitely delivered on Draghi’s maxim of “doing whatever it takes”. Almost instantaneously this combination of adrenalin, estimated by Cornerstone Macro to equal 32.9% of global GDP, transformed the outlook for financial markets. In our minds, it was monetary action that mattered most for stocks.
What a month November 2020 turned out to be! While point-to-point bond yields were flat, all 50 global equity indices tracked by S&P Global Markets showed gains, fueled by the market’s transition from ‘Merger Mondays’ to ‘Vaccine News Mondays’.
While U.S. election drama of the past couple of days causes last month to seem ages ago, as always this commentary will begin with a review of last month in markets and our funds
September 2020 started strongly for equities with the S&P 500 notching its 21st and 22nd year-to-date all-time closing highs. Direction then changed as equities proceeded to take it on the chin until the last few days of the month, shedding more than half of August’s advance. It’s possible this shift was catalyzed by factors related to COVID-19 or growing U.S. election uncertainty, or perhaps just plain levity, since the SPX had climbed 60% during the previous 114 trading days.