What a turbulent year it was for us traders, from the coronavirus outbreak to oil wars, let Lit Capital journey through what exactly unfolded with this recap:
An Agitated January
Before the Coronavirus outbreak bossed the headlines it was actually the ongoing Oil price war which got the financial markets off to a rocky start, with Saudi Arabia & Russia not seeing eye to eye regarding oil production. This sent the markets in a downward motion with Oil falling 5%.
Then came the news coming out of China which sent its stock market falling with the epidemic coming out of Wuhan in the form of a virus. This breakout sparked a warning from the WHO saying we could be in for a new form of a SARS like virus. Oil continued to fall as traders began worrying about a drop in Chinese demand, but other major markets were not seriously affected until mid-February, when it became clear the virus was rapidly spreading out of Asia.
Have we ever seen a March like 2020?
Then came MARCH MADNESS where it was estimated that the world share Index lost a third of its value which equals to around 18 trillion! (yes you read that right) Wall Street’s S&P 500, Dow Jones and Nasdaq slumped 35%, 38% and 30% respectively. London and Frankfurt’s internationally exposed FTSE and DAX markets dropped 35% and 40%. Japan’s Nikkei fell 30%. Chinese stocks saw a more modest 16% drop.
The pandemic was really here and unlike the past where potential outbreaks were contained this episode was a reality needed to be taken seriously, world economies were in utter meltdown. For reference, the record quarterly drop for Wall Street was 40% in 1932, the onset of the Great Depression. The fact that the S&P and Dow were at record highs in mid-February made the crash this time seem more vicious.
Up stepped the central banks who intervened to help stem the flow of the pandemic, The U.S Federal Reserve took initiative and dropped interest rates to zero. At the beginning this has little to no impact but once it opened new swap lines to keep money markets flush with dollars and the European Central Bank and other big central banks arrived with their own measures, the rout eased.
The amount of money and effort thrown at the problem has been unprecedented.
Bank of America calculates that central banks have spent $1.3 billion an hour buying assets since March and made 190 interest rate cuts this year, which works out to four every five trading days. Global debt is approximately 400% of world gross domestic product, compared with around 280% after the financial crisis in 2009.
As well as fuelling the monster market rebound, JPMorgan estimates the central bank moves have left nearly $35 trillion, or 83%, of all richer, developed nations’ government debt with a negative yield once inflation is factored in.
It means investors are effectively paying for the privilege of lending to those countries. Germany’s finance ministry, for example, says it has earned more than 7 billion euros ($8.51 billion) from issuing new bonds this year.
By April the International Monetary Fund was forecasting global growth would to fall to minus 3 percent, a 6.3 percentage point downgrade from its January estimate. Its latest forecast is for minus 4.4% for the year. “This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis,” it has said.
Stock markets had begun to rebound positively but the same could not be said for the oil markets, for the first time ever we saw Oil go negative hitting as low as minus $40 a barrel. What could even cause that is what you are now wondering, well with the world at a stand still you would understand the demand had simply collapsed sparking fear amongst oil producers that storage capacity could run out. It did not last long, though. By the end of April it was back up to almost $20 a barrel and is now back above $50 - a 220% gain for anyone brave enough to dive in - although it is still down nearly 25% for the year as a whole.
How Did Stocks Perform?
A breakdown of the best- and worst-performing stocks also tells the story of the pandemic, Malaysian rubber glove maker Supermax and Korean pharmaceutical firm Shin Poong have rocketed roughly 780% and 1,600% respectively.
The boom in working from home and video chat has lifted Zoom 420%. Moderna, one of the drug firms delivering a vaccine, is up over 470%, sit-on-your-sofa stocks like Netflix and Amazon have jumped 62% and 77% respectively. The other big trend of the year - electric cars - has seen Tesla surge 730% and its rival Nio charge up over 1,000%.
At the other end, cruise ship company Carnival has lost 57%, scores of airlines, travel firms and retailers have been battered, and aircraft-engine maker Rolls Royce has been pummelled over 50% for the year.
What About Currencies?
Major currencies have also seesawed. The safe-haven dollar surged up until the mid-March turnaround but is now down 7% for the year and 6% since late September, whereas the euro and yen are up roughly 10% and 5%.
Sweden’s crown is the top 2020 performer with a near 13% jump. A 6.5% surge for China’s yuan will be one of its best year’s, too. But there is still plenty of pain in emerging markets.
Brazil’s real is down 22%. Russia’s rouble - one of last year’s top performers - is down 17% despite a bounce and near bullet-proof balance sheet. Turkey’s lira has climbed off record lows but is still down 19%. Mexico’s peso and South Africa’s rand are both down 4% to 5%, although they were down 14% and 20% respectively at the end of September.
November was also key. First came the U.S. election defeat for Donald Trump with new elect Joe Biden set to take the reign, which raised hopes some of the global trade tensions would ease. Then days later came the long-awaited news that one of main vaccine hopes had proved over 90% effective in protecting people from COVID-19.
That double boost saw a record 12.6% monthly leap in the MSCI world stocks index, adding approximately $6.7 trillion - or $155 million a minute - to the value of world equities. It is still going. Stocks are now up over 14% for 2020 and 70% off their March lows. U.S. and German government bonds and corporate debt have all returned between 10% and 14%, gold is up 24%, while the super-sized FAANG tech stocks group are up over 100% and cryptocurrency Bitcoin more than 300%.
The 2020 stock rally from lows is now bigger than 1929, 1938, 1974.
That's a wrap up on 2020, what we can expect of 2021 is unknown but we would be naive to think all the economic problems in the world will just disappear, all we can do is get ready for the ride.