With the year 2020 now in the rear-view mirror, we can look back and say that was one heck of a roller coaster ride.
Global stock markets started 2020 with a nice gradual climb giving investors a comfortable feeling with a smooth ride. We hit the crest in the last week of February 2020 and the smooth ride turned into a quick sharp drop in equities and bonds. For equities, the correction set a record for the fastest market drop ever.
The US along with most major countries globally, reacted quickly with economic and financial stimulus. Short term interest rates were basically taken to zero and money was printed to provide liquidity. The US Federal Reserve Board (FED) stepped in and supported the bond market which helped stabilize the whole financial system.
At the end of March 2020, the stock market roller coaster ride started a nice steady climb up with the odd dip but nothing close to what occurred in March. We ended the year with a reasonably smooth ending, coasting to a finish.
So, what kind of stock market ride is 2021 going to bring to us. COVID 19 is still a major factor but the release of vaccines has helped give global stock markets confidence that we will be able to get decent control of COVID 19 as the year progresses.
As a whole most financial analysts with investment companies are quite bullish (positive) on a strong economic recovery and with it globally strong stock markets. Personally, I feel economically things will improve as we go through 2021 with even better growth in 2022 and beyond. My present concern is that stock markets have anticipated the initial economic recovery and that it is mostly priced into the current stock values. This is more so for technology stocks than say cyclical stocks that have been really hurt by the COVID 19 pandemic.
In summary I expect stock markets to provide positive returns for 2021. I am just not as optimistic as many investors. Interest rates will remain low for years and the economy will improve as vaccines provide protection from COVID 19. This will allow people worldwide to start returning to activities we enjoy doing and by spending money to provide global economies a much needed boost. This will provide long-term support for stock markets and any major market correction should provide opportunities to invest in 2021. With low interest rates taking some risk with stocks is the most logical way to improve returns to try and stay ahead of inflation. Presently we are mostly invested but continue with a conservative bias. If you have any questions or comments please feel free to contact me.