Market Monitor - 8 January 2021

Market Monitor – 8 January 2021

The Covid-19 pandemic and the way governments and businesses around the world responded to it was the root cause of practically every major stock market movement in 2020. In February and March, the dawning realisation of the likely economic impact of coronavirus – and the lockdown policies that would be necessary to keep infection rates under control – caused a huge slump in share prices around the world, with many major indices losing a third of their value if not more in just a matter of days.

Winners and losers in a mixed year

But the picture for the year as a whole has been remarkably mixed. Stocks as whole have certainly recovered, by and large, from their March lows – but the extent to which individual companies and markets have bounced back has varied considerably. The sector that has proved to be the most resilient in the face of the pandemic has been technology: a mass shift to remote working as the initial lockdown policies came into effect meant that reliance on videoconferencing services and cloud computing increased dramatically, while the growth of online retail also accelerated sharply over the course of the year. The price of shares in the likes of Amazon, Microsoft, Google and Zoom soared as a result. Covid-19 had a far more damaging effect elsewhere in the global economy, however: travel businesses such as airlines and hotels have suffered tremendously, as have those in the leisure and hospitality industries – not to mention many of the retailers which were forced to suspend trading as a result of lockdowns. The gloomy outlook has also depressed oil and commodities prices for much of the year, which has been bad news for the likes of energy companies and miners.

FTSE woes and S&P 500 highs

This helps to explain why the FTSE 100 index in London suffered its worst year since the financial crisis – losing more than 14% of its value over the course of 2020 – as the FTSE is disproportionately made up of businesses in these hard-hit sectors. In the United States, conversely, the tech-heavy S&P 500 index spent the latter months of the year at all-time highs, gaining more than 16% on its 2019 close.
Although a number of indices, in particular most of those in Europe, ended the year in the red, there was a widespread rebound from the lows experienced in March. Initially, stocks rose as a result of swift action by central bankers to shore up economies, launching new rounds of quantitative easing, subsidising company wage bills and even issuing cash handouts to consumers. But optimism has also been fuelled by the rapid development of at least three effective Covid-19 vaccines, with news of successful clinical trials lifting global share prices in November. The resounding victory for Joe Biden in the US presidential election in the same month also helped markets shake off their concern that America could face a disorderly transition from the Trump administration. In Britain, the FTSE suffered not only due to its high proportion of coronavirus-hit businesses, but also as a result of persistent concern about Boris Johnson’s ability to negotiate a trade agreement with the European Union – a process he finally managed to conclude on Christmas Eve, exactly a week before Brexit became a practical reality for thousands of businesses. The year ended on a note of uncertainty, with a new, apparently more infectious strain of the coronavirus taking hold in the UK and new lockdowns on the horizon. However, with the roll-out of Covid-19 vaccines now well underway, investors had good reason to be cautiously optimistic as 2021 began.
01/01/2020
31/12/2020
Change (%)
FTSE 100
7542
6460
-14.3
FTSE All-share
4196.5
3679.1
-12.3
S&P 500
3230.8
3756.1
16.3
Dow Jones
28538.4
30606.5
7.2
DAX
13249
13718.8
3.5
CAC-40
5978.1
5551.4
-7.1
ACWI
564
646.3
14.6

Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 01/01/2021.

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8 January 2020
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