Market Commentary – December 2020

December 2020

Overall December saw us caught between optimism about potential vaccines and pessimism about the second wave of coronavirus infections. There were outcomes both in the US with regards to the presidential election and the UK’s trade agreement with the EU.

As we reflect on December, the UK displayed a worrying decline in GDP. Within the world’s major economies only Argentina has shown poorer results. The UK contracted by 11.2% compared with 7.5% for Europe, 3.7% for the US and 4.2% being the global average. China was only major economy to see growth this year.

The UK and US economies are heavily dependent on consumer spending and the lack of consumer confidence and physical ability to spend, if shops are closed due to fresh restrictions, is another barrier to economic recovery.

December resulted in more episodes of the ‘deal or no deal’ Brexit charade. Although a makeshift deal was done, no doubt businesses and consumers will continue to feel the aftershocks of the UK’s disintegration from the EU for quite some time to come.

Despite the government’s furlough scheme and the financial support available to employers, the UK’s labour market deteriorated sharply over the autumn. The number of people in employment has fallen at its fastest rate since March 2010. In total, 370,000 people were made redundant between August and October last year, the highest figure on record.

Across the pond, US markets were reassured by the prospect of political stalemate in Washington, as Joe Biden’s victory in the presidential election was balanced by the Republicans likely retaining control of the Senate. We also seen the continued success of US tech stocks with a very successful IPO from Airbnb whose share price more than doubled as investors queued to grab another slice of the latest high growth firm to list in the US. However, the increasing amounts of regulation and the prospect of greater taxation could put the brakes on future profitability levels within the Technology sector.

Asset ClassProxy1-month return3-month return6-month return1yr return
CashUT Cash/Money Market0.00%00.03%00.06%00.80%
UK Corporate BondsUT UK Fixed Interest00.73%00.91%00.32%08.92%
Emerging Market EquitiesMSCI Emerging Markets03.32%12.37%18.77%14.65%
European EquitiesMSCI Europe ex UK01.13%08.05%10.74%07.49%
Gilts FTSE Gilts All Stocks02.38%00.89%-00.04%08.27%
Japanese EquitiesMSCI Japan01.28%08.61%13.24%10.95%
PropertyUT Property00.98%05.04%05.91%-06.47%
UK EquityFTSE All-Share01.81%12.24%09.43%-09.82%
US EquitiesS&P 50000.26%04.58%09.86%12.67%

Data Sourced from FE Analytics, and Bloomberg Finance LP