Friday's Market Minute: Will The Stock Market Success Story Continue In 2021?

The COVID-19 pandemic has impacted the markets in unusual ways. It is one thing to talk about the impact of the pandemic, but it is more interesting to study the investors’ reaction to what followed. Investors flooded the stock market with intense appetite despite traditional valuations that make no sense. Many stock market indices made new all-time highs during the pandemic, with the Nasdaq-100 in the United States leading the way. Micro trends evolved in individual biotech stocks, EV autos, alternative energy, IPO’s, and SPACs gearing up for mergers. This year, the global stock market capitalization exceeded $100 trillion for the first time in history. Central banks around the world scooping up bonds have depressed fixed-income returns. As such, investors took the risk to put their capital in the stock market since there is no alternative.

When considering several recent bullish data points, the momentous rally may have further to run. The U.S. economy is forecast to contract about 4% in 2020, but expected to recover in 2021 and grow by 4.7%. The world’s commodities markets are staging a comeback as the global economy rebounds back from the steepest downturn since the Great Depression. Just this week, Brent crude oil climbed above $50 a barrel for the first time since early March. Copper has surged about 70% above its March low to its highest in more than seven years. Exports from China surged 21% in November from a year ago. The Bloomberg Commodity Spot Index is trading at its highest-level highest since 2014.

It is safe to say 2020 took everyone by surprise, but what looked like a stock market catastrophe turned into a success story. The best-case scenario for 2021 remains that we will see accelerating global demand, but it all depends on COVID-19 containment.

Photo by Chris Liverani on Unsplash