With 2020 now well in the rear vision mirror, the future is looking much brighter than it did even six months ago. The Covid-19 vaccine roll-out and prospect of getting back to normal life is a great cause for optimism. But after a very rocky past year, what can we expect to shape the next 12 months ahead, and where will the challenges lie?
Let’s take a look at the key trends that are likely to dominate 2021.
Covid-19 vaccine rollout
With a slew of Covid-19 vaccines hoping to be available in the coming months to complement those already being distributed, markets are gaining confidence that life under lockdown will come to a much-anticipated end in the not-too-distant future. Vaccinations mean restrictions can be eased and we can start to return to life as we remember it prior to the pandemic. However, the key challenge is the success of the global roll out of the vaccine and whether vaccines will offer protection against current and future mutant strains. How this plays out may have an impact on market confidence.
With nowhere to go and not much to do in 2020, people in Ireland saved €13.1billion bringing deposits to an all-time high. When restrictions are eased it is reasonable to expect people will want to celebrate their renewed freedoms by spending at least part of their cash. Fiscal supports are also likely to continue throughout 2021 to support businesses to get back on their feet.
Greater, yet not total, certainty from Brexit
When the UK left the EU on 31 December, it was with a basic trade deal that avoided the hard Brexit so many feared. While it was agreed that tariffs or quotas would not apply to goods traded between the EU and the UK, the agreement does not cover services. It also comes with a raft of new customs requirements that have increased the cost and administrative burden of trade. As negotiations continue around certain components of the deal, it means some uncertainty will continue, especially for Irish SMEs where many rely heavily on trade with the UK.
Industry and regional comebacks
After a difficult year November finished by breaking a 45-year record for the best performance in a single month. By the end of 2020, the market had made gains of 6.6% for the whole year. With such a huge demand for remote working solutions such as Microsoft Teams and Zoom, it was the tech sector that benefited most. Financials and Energy didn’t do so well as a result of low interest rates and diminished energy use, while regionally, the UK and Europe were well behind the US. However, with the world looking towards a return to normality, confidence is returning and we will start to see the return of those industries and regions more significantly affected by the pandemic.
Leadership certainty – and uncertainty
With Trump replaced by President Joe Biden on January 20 this year, there is much greater optimism about the US economy – and society more widely – in light of the new President’s pledge to bring unity and renewed stability to the nation. He also brings with him a positive approach towards international relationships, global trade and collaboration, buoying hopes that EU-US relations will benefit. A period of uncertainty for the EU is however just around the corner with the departure of Chancellor Merkel, the French elections and ongoing negotiations with the UK around trade.
The impact of Gamestop on the future of markets
When armchair investors from the Reddit WallStreetBets chat room decided to take on hedge fund short sellers back in January in a David vs Goliath type scenario, they rallied to buy up Gamestop stock, or take options to buy it, pushing the stock price through the roof to a high of $483 – up from $4.50 back in August 2020. Short sellers who had hoped to make a profit off what they predicted would be Gamestop’s declining valuation scrambled to buy up more stock at the higher price to mitigate their losses or close out. While this returned a lucrative profit for the armchair investor “mob” it translated into billions of dollars in losses for short sellers. Gamestop has shown us that trading isn’t at the mercy of Wall Street and is open to manipulation, reinforcing the need now more than ever to avoid being swept up in market euphoria and to always obtain expert investment advice from an experienced financial broker.
Despite cautious optimism for 2021, uncertainty still exists. It can be helpful to speak to a financial advisor to determine how this might affect your investments and your financial goals. Give the Hennelly Finance team a call to discuss your circumstances and how to approach 2021; call us now on 091 670 123 to find out more.