What a year!
2020 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 price index of 16.3% year to date, and the S&P/TSX, Nasdaq, and MSCI EAFE year-end price indices were 2.2%, 43.6%, and 5.4% respectively.
For investors, the best opportunity occurs when equities fall 30% or more from their peaks, and this proved true again last year in terms of returns from the bottom. While that ideal bottom of the market investment opportunity has passed, we’re 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 lockdown. However, there’s far less uncertainty this time around. We know what to expect and we know it works. 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 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. 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.
This is not a time to sit on the sidelines, but a time to make calculated investment decisions. 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.
As always, if you have questions about the markets or your investments, I’m here to talk.
Bryan and Darren Bye