2020...What a YEAR!
Updated: Feb 2
It will go down as one for the history books. The first reports of a mysterious virus quickly turned into a pandemic, global shutdown and the worst economic crisis since the Great Depression. And yet, by the end of the year, markets had recovered beyond expectations.
In March, all eyes were on the S&P 500, S&P/TSX, Nasdaq, and MSCI EAFE indices as they fell approximately 34%, 37%, 30%, and 34% respectively. Every economic downturn in history has led to an upturn, and this time was no different – except perhaps the speed at which the drop and rebound occurred. The S&P 500 closed at the end of 2020 with a record high returning 16.3% for the year, and the S&P/TSX, Nasdaq, and MSCI EAFE gained 2.2%, 43.6%, and 5.4% respectively, not including dividends.
For investors, the best opportunity typically occurs when equities fall 30% or more from their peaks, and this proved true again last year. While that ideal bottom of the market investment opportunity has passed, we are still optimistic about the year ahead. There’s reason to believe that the economic environment in Canada, the U.S. and internationally will be much improved from 2020.
A few points worth noting:
Coronavirus. Areas of Canada and the U.S., along with several European nations, are experiencing a second round of lockdowns. However, there’s far less uncertainty this time around. There’s also light at the end of the tunnel as vaccines are continuing to roll out in several countries.
Canadian dollar. We believe the CAD will continue to rise relative to the U.S. dollar (USD). As oil prices continue to trend higher, we anticipate the loonie trading at US$0.79-0.81 over the course of the next 6–12 months.
Thematic investing. There’s increasing interest in this type of investing, which looks at long-term trends and identifies opportunities based on where the world may be heading. Many of these trends have been accelerated as a result of the pandemic. Not surprisingly, we’re seeing increased attention in the areas of pharmaceutical, health, digital initiatives, and e-commerce. Environmental, social, and governance (ESG) investing, and plant-based nutrition are also areas to watch.
Inflation. Prices will continue to rise in 2021, however, central banks will likely keep interest rates low until well into 2022.
Valuations. Getting expensive but earnings are supportive unlike Jan/Feb 2020.
Commodities are expected to have a growth year with increased prices.
Pent up demand and excess savings. Currently $2 trillion in excess household growth
High probability of positive returns in 2021 due to accelerated growth and accelerated inflation both of which provide a positive environment for equities.
Continue holding Fixed Income that is tactical and opportunistic. Meaning, a bond portfolio that can seek out and find yield from different geographic regions and types of bonds whether it be sovereign issued or corporate-issued.
This is not a time to sit on the sidelines, but a time to make calculated investment decisions. We would not be surprised to see some volatility and if the markets do pull back at some point early in 2021, remember what happened last year and be ready to take advantage of any investment opportunities.
The adage This too will Pass, as simple as that may be, holds extremely valuable advice. This last year has proven our performance and returns to be both tactical and opportunistic, which is key to investing in times of uncertainty.
In closing, thank you for your continued trust in business. We do not take that for granted. Alleviating any fear and uncertainty from your finances while continuing to earn your trust in business is our priority!
Please reach out with any questions. We are always just a phone call or email away!
All my best with kind regards,
Roger Banks, RRC