Last year proved to be one of the most unpredictable in modern history. It was also a year of resilience – of people, institutions and financial markets.
Despite a sequence of epic events and continuing concerns about the impact of the coronavirus pandemic, global stock market returns in 2020 were above their historical norm.
Although one year performance doesn’t form the basis of our decision-making (we adopt a buy and hold strategy), it is important to know how your investments are performing. Here’s my quick overview of what has happened in the last 12 months.
Early warning signs
2020 began with concerns about an escalating tit-for-tat trade war between America and China, but coronavirus was already starting to make the news and as infections multiplied around the world, it was clear the crisis would overshadow all other events.
The spike in cases provoked a global economic contraction in the spring, as people stayed close to home, prompting governments and central banks to attempt to cushion the blow, providing financial support for business and individuals and adjusting lending rates.
Fixed income markets mirrored this extreme behaviour, with an almost unprecedented dispersion in returns during the first half of the year.
Market performance
Amazingly, despite such epic events, stock market performance last year was above average. Global developed markets returned 12.32%, whilst emerging markets achieved 14.65%.
By March, American stock market index, the S&P 500, had declined 25.66% from its previous high, as the pandemic worsened. However, it rallied in April and was back on top by August.
By then, the US was increasingly focused on the presidential elections and as we all know, the results were disputed well into December, but despite this added turmoil, its markets finished the year in record territory, with the S&P 500 posting a 14.74% annual return.
Europe didn’t fare quite so well. On the whole, its markets underperformed, returning 2.13%. Indeed, the UK posted negative annual results, at -13.23%.
Holding firm
As autumn turned to winter, the year ended amidst another surge in Covid cases, but with a glimmer of hope in the form vaccines.
Uncertainty remains about the impact of the pandemic on the economy, but the last 12 months have provided investors with many lessons. They have affirmed that a disciplined, broadly diversified approach remains a reliable way to pursue long-term investment goals.
Looking forward, there are still many questions to answer about how Covid has changed business activity, how people work and socialise and the direction of global markets. What we have learned is that people can adapt to difficult circumstances and markets continue to function throughout the most tumultuous times.
The year’s positive equity and fixed income returns remind us that, with a solid investment approach and staying power, we can continue to build wealth, regardless of the challenges that come our way.
To find out more about our investment philosophy, don’t hesitate to contact us on (01246) 298181 or email: enquiries@belmayne-ifa.com
