A Look Back at an Eventful Year and Forward to 2021
In a few hours we will all begin to say goodbye to 2020; for most of us the most eventful year in living memory.
Covid was, of course, the dominant theme of year – but not the only one.
US Politics
February saw the impeachment trial of Donald Trump, only the third US President in history to suffer this fate. The President was found guilty in the Democrat-controlled House of Representatives and acquitted by the Republican-controlled Senate.
Attention quickly moved onto the Democratic primaries, where Joe Biden struggled in the early rounds in a wide field of candidates but pulled ahead after winning S. Carolina.
George Floyd was killed in late May, sparking hundreds of BLM demonstrations, and anti-demonstrations, that convulsed the country for months.
November 3rd brought us the election and the subsequent questioning of the results, which though diminished still rumbles on.
Against these headwinds, and Covid, it is amazing that the US markets performed as positively as they did. The S&P 500 closed yesterday at 3,732.77 – 15% up for the year and almost 48% up on its low point on the 23rd of March.
Going forward, lookout for Georgia’s Senate re-run on the 5th of January. This will determine whether or not Democrats get to control the Senate, as well as the House of Representatives and the Presidency. That scenario would make a larger stimulus more likely which would have a downward impact on the dollar but probably a positive impact on consumption and the real economy.
UK Politics & Brexit
The consensus view at the beginning of the year was that a trade deal with the EU was very likely to get done. However, the mood gradually soured and for several weeks in November and December everything seemed to hang in mid-air. In the end, an agreement was announced on Christmas Eve, to the relief of the markets.
Whilst not as dramatic a year as the US, the FTSE 100 looks as if it will close the year about 36% up on the year’s low in March but 14% down for the year. This probably reflects the inclusion of large retailers, banks and oil majors in the index and a shortage of technology heavy weights.
Looking forward, the practical difficulties that Brexit creates for British exporters are likely to become more visible in January. These, however, are likely to be outweighed by the removal of uncertainty surrounding the whole Brexit process.
It is possible that negative sentiment towards the government’s handling of Covid will grow but with the elections years away and a compliant Conservative party behind Boris, politics shouldn’t interfere too much with UK markets.
Looking Forward
Low interest rates are one of the main factors supporting the financial markets in the US and UK. These rates are only possible whilst inflation is low. So keep both eyes on inflation.
A good trading relationship with China will help to keep inflation low, so something else worth keeping an eye on is Biden’s tone towards China.
The other big factor for 2021 will be Covid – will the vaccines work as expected, will they be rolled out quickly, will they deal effectively with future mutations? If the answer to these questions is yes, we will see a lot of support for the real economy.
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