Weekly comment: Bittersweet beginnings

Weekly podcast: Markets Uncut

For the turn of the year, Head of Fixed Interest Research Richard Carter discusses the two biggest talking points of 2020, Brexit and the coronavirus. Will a Brexit deal and a coronavirus vaccine be the economy’s saving grace in 2021?

Market overview – Alan McIntosh, Chief Investment Strategist

Last year closed with good news and bad news. The positives were a trade deal between the UK and EU, thus avoiding automatic tariffs on a wide range of goods, as well as the signing of a new coronavirus relief package in the US, providing ongoing financial assistance to households and small businesses. The negative was the fast spreading of a more virulent version of COVID-19 in the UK, resulting in tighter restrictions on interactions within the population. A minimalist Christmas was followed by a virtual-only New Year, at least in terms of celebrations. Nevertheless, the FTSE World Index closed 2020 at an all-time high, led by the US stock market and fuelled by optimism around the prospect of mass vaccinations taking place over the next few months. However, UK investors saw their domestic market post a decline following the weakness in oil and bank shares.

What are the prospects for 2021?

A successful rollout of the various vaccines should allow most economies to function closer to normal by the second half of the year. Central banks remain committed to keeping interest rates low in order to give economic recovery time to bed in. A robust pick-up in prospects for the second half of the year should also allow corporate profits to bounce back, particularly in sectors badly impacted by the virus. This suggests that stock markets should still be able to deliver a good return this year, building on the improvement seen since the sharp falls of last March.

Written by

Alan McIntosh
Chief Investment Strategist

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