COVID-19 has severely tested the global economy and markets in 2020. Aided by unprecedented monetary and fiscal stimulus, markets responded with surprising resilience beginning in late March and throughout the second quarter. The market recovery continued to gather momentum in the third quarter as economic growth rebounded strongly across the globe amid relaxation in COVID-19-related lockdowns, fiscal and monetary policy support, and the release of pent-up demand. Though infection rates were re-surging in some developed economies, the worst seemed to be behind us at that point as key vaccine trials continued to make quick progress.
At the end of the third quarter, however, growth momentum began to decelerate as fiscal support waned and services growth remained restricted; investors worried about stretching valuations, rising infection rates, and uncertainty associated with the US elections. This bout of negativity proved to be short-lived though. As we turned the corner on the US election, developments on a number of fronts, starting with improving prospects for fiscal stimulus, positive earnings sentiment, and reports of 90% efficacy for the Pfizer vaccine, bolstered investors’ outlook on risky assets and propelled global equities to a strong post-election rally.