On the last day of 2020, we look back at the main events that moved the markets this year. Some, like the crisis in the oil market and Brexit, were concerns that carried over from previous years. Others, like the US presidential election, were expected to play a larger role than they did. But perhaps no one could have predicted the event that singularly dominated 2020: Covid-19.
The Coronavirus
The novel coronavirus first appeared at the very end of 2019 in Wuhan, China. It quickly spread throughout China and then to nearby Japan and South Korea. The World Health Organization tried to estimate how contagious the novel virus is and how fast it could travel as the first travel bans and lockdowns started.
It wasn’t until February that Covid-19 made its way to Europe and North America. Spring saw the first lockdowns on these continents and summer brought hope that the pandemic will end. But it didn’t.
While the summer was more or less a period of recovery for the European Union (which approved a massive stimulus plan that pushed the euro to multi-year highs), the United States continued to struggle with the pandemic. Trump’s administration was skeptical of the virus, prioritizing the economy over public health. After all, more than 22 million Americans had lost their jobs in the first lockdown.
But with lax measures, the pandemic only kept getting worse in the US. In late fall, the United States was confirming upwards of 250,000 new cases per day, which is comparable to the total number of daily cases in Europe (including the UK and Russia) at the time. Out of 83 million coronavirus cases globally, 20.2 million have been in the US alone.
The results of the pandemic were the same everywhere: economic contraction, increases in unemployment, drops in inflation. Central banks around the globe all switched to softer monetary policies to accommodate an economic recovery. Stimulus became one of the main keywords investors watched out for. Safe havens thrived amid the chaos and panic in the first half of the year.
The Oil Market
Thanks to all of the travel bans and stay-at-home orders around the world, the demand for oil dropped even lower this year. The market was already oversupplied long before Covid-19 happened. 2020 just made things worse, and the brief price war between Saudi Arabia and Russia in the spring didn’t help.
However, with patience from OPEC+ and a recovery in the Chinese industrial sector, oil prices managed to push to $50 and will end the year close to where they started it.
The US Presidential Election
It wasn’t the election itself as much as Trump’s handling of it that dominated US news towards the end of the year. The incumbent President refused to acknowledge the democratic election process and claimed - even before the election started - that if he loses, it will be only due to voter fraud.
He lost, and then naturally started a campaign to delegitimize the results. This contributed more volatility to the markets and allowed safe havens to stay somewhat in demand, at least until it was confirmed that Joe Biden will take office, regardless of what Trump says or does.
The Vaccines
Earlier in 2020, it was rumored that vaccines against Covid-19 will become available in October. This deadline was missed but not by much as the companies behind the three most promising vaccines (Moderna, Pfizer-BioNTech, AstraZeneca) all filed for approval in November.
The prospect of a cure against the coronavirus dramatically changed investor sentiment. Traders abandoned safe havens in favor of riskier assets. The dollar weakened, while the euro and stock indices rallied to multi-year maximums. Even oil prices benefited from the approval of Covid-19 vaccines.
Brexit
What was expected to be the chief drama in Europe and the United Kingdom this year was forced to take a backseat by the pandemic. Indeed, the negotiations of a free trade agreement went slowly and uneventfully for most of the year, and blew past multiple deadlines.
Yet, experts remained optimistic. Especially considering the economic fallout from the pandemic, it was clear to many that the UK could not afford a second crisis in the form of a hard Brexit. So the two negotiating teams worked hard and were able to shake their hands on a deal right before Christmas, a somewhat encouraging end to a nightmarish year.
2021
So, what’s in store for next year? For now, hope. Thanks to mass vaccinations, a transition towards a less polarizing presidency in the United States, and uninterrupted tariff-free trade between the EU and the UK, 2021 is going to begin on a positive note. Risky assets are likely to remain in demand, unless the new year throws us all a curveball, the likes of which we experienced in 2020.
