Overall Market Backdrop, December
– While not really achieving the customary fillip that constitutes the ‘Santa Claus Rally’, equities did manage to tack on additional gains in December, with the somewhat more muted performance in the developed markets pointing to a little consolidation, while emerging markets led the way.
– Among the developed markets, the UK is noteworthy for its continued bounce back. While the extent of the recovery still lags all other major economies by some distance, it does at least show that clarity on a Brexit deal and a vaccine program rollout are filtering through into increased optimism. However, this predates the most recent shutdown measures enacted on the back of the discovery of the new, more transmissible strain of COVID, so it remains to be seen if the rally persists or peters out.
– US equities were stuck in a holding pattern during the month, as the ‘three-ring-circus’ of fiscal stimulus brinksmanship, baseless electoral fraud allegations and twin senate run-off elections in Georgia that would determine control of the US Senate, all sought to inject a little haziness on the path forward.
– The continued divergence between Wall Street and Main Street is a cause for concern on many levels, and 2020 has somewhat surreptitiously marked the greatest transfer of wealth in the history of mankind. There’s a distinct sense that two Americas are developing, and while fiscal stimulus that puts cash in everyone’s pockets seems equitable (and has undoubtedly led to increased stock market participation among those who don’t actually need the money to begin with), the dire situation of those unemployed and subject to eviction moratoriums makes the urgency of their plight an ever more precarious spark in the tinder box of a post-Trump era of unrest.
– The US bond market saw yields tick up moderately throughout December, and reflation trades began to emerge. While the tech bellwether index, the Nasdaq 100, looked sluggish, mid-to-small cap companies within the Russell 2000 jumped up by around 8.5% for the month.