December 21, 2020
What happened in 2020
A year like no other
How do you put a year like 2020 into perspective? For financial markets, start with what happened prior to the pandemic.
In the first two weeks of January, a U.S. military airstrike killed Iran’s top general, Qasem Soleimani. The action sent investors scrambling for safe havens (like gold) to ride out the volatility. From that point, tensions increased when Iran retaliated with a missile attack on Iraqi bases housing U.S. troops. Eventually cooler heads prevailed, but the conflict served as an ominous signal to start the year.
The U.S. and China signed the first phase of a broader trade agreement on Jan. 15., during the same week that the U.S. Senate approved the USMCA (United States-Mexico-Canada) free trade agreement. These were important political victories for President Trump in the lead up to his impeachment trial (he was ultimately acquitted by the U.S. Senate in February) and a huge boon to markets, which took off on a torrid pace.
COVID-19: the fall and recovery
Economies around the world ground to a halt in early March. And the road to recovery surprised many.
On Feb. 19, all four major North American stock markets closed at, or near, all-time-record highs. In the six trading days that followed, global stock markets lost more than $3 trillion in value. The Dow Jones Industrial Average and the S&P 500 both fell 12% from their all-time highs. Canada’s S&P/TSX Composite dropped over 6%. The 10-year U.S. Treasury Yield also slipped to its lowest historical level, as investors looked for safety in government bonds.
Extraordinary market volatility continued through March, as trading volume surged to levels unseen over the 35-year period in which data has been compiled. Intraday stock market drops of greater than 7% (from March 12-16) triggered multiple 15-minute trading halts across the major North American exchanges – built-in market reprieves to relieve selling pressure.
A price war between major oil producers in Saudi Arabia and Russia, coupled with global lockdowns and travel bans, decimated demand for oil through the first quarter. March 18 alone saw a 24% plunge in the price of oil – to levels not seen since 2002.
Markets have steadily climbed back. As of December, U.S. stock indexes have set new records, and Canada’s TSX has come to within sight of its own. Though it’s taken longer to bounce back than its U.S. counterparts, the TSX surged 10% higher in November and has added another 2% so far this month. Since hitting its lowest point in March, the TSX has regained almost $1 trillion in market value, according to Bloomberg.
Did you miss our “Navigating market volatility” series? Find those resources and more on Market View.
An election for the ages
Along with the uncertainty caused by COVID-19, investors also had to navigate an extremely contentious U.S. presidential election.
The final week of trading before the Nov. 4 election saw a surge in coronavirus cases and stalled financial-stimulus negotiations. That led to the biggest weekly drop since March, with all four major North American indexes losing between 4-7%.
The week after, North American equity markets bounced back with the biggest rally since April. Investors anticipated a Joe Biden victory, and a congressional split between a Democrat-controlled House of Representatives and a Republican Senate; an issue that will remain front and centre until Georgia’s runoff election on Jan. 5 for two Senate seats. The results will also determine which political party holds a Senate majority.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
| 10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending December 18, 2020. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
What’s ahead in 2021
Duncan Mathieson, EVP Canadian Equities, Addenda Capital Inc., anticipates a mixed start to the year. “On the negative side, we’re well into the second wave of COVID-19, and local and global economies continue to struggle,” he said. “On the positive side, many of the uncertainties around the U.S. election are now behind us and, from a market point of view, the outcome is exactly what the market wanted. Progress is being made as the COVID-19 vaccine becomes more widely available. And there’s a potential for further fiscal stimulus, particularly in the U.S., but also here in Canada and elsewhere in the world.”
Fund manager outlook
Check out more of our fund manager partners’ predictions for financial markets and investing in 2021:
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