Quarterly market commentary - December 2020

When we reflect on the performance of global equity markets over the last 12 months, a picture really does tell a thousand words…

The following chart highlights the cumulative performance of the S&P Global Broad Market Index[1] (in USD) over the course of the tumultuous last 12 months. After falling over 30% during the first quarter when the initial wave of the global pandemic hit, the index then defied all expectations by, remarkably, closing out the year with a gain of +16.8%. From the low point on 23 March, this represented a global share market rebound of just over 73%!


Figure 1: S&P Global Broad Market Index (BMI) cumulative total return in 2020

[1] A float-adjusted market capitalisation global share index measuring the US dollar performance of over 11,000 constituent companies across 25 developed and 25 emerging market countries. 


When a year like 2020 comes along, it provides a stark reminder of the difficulties of forecasting.  In January, almost no one was predicting a deadly global pandemic.  And yet, before the quarter was out we were facing the unimaginable, and global shares had fallen in a heap.  In late March, the world was struggling to come to terms with what had occurred.  We were besieged by escalating Covid infection rates, mounting deaths, border closures, country lockdowns and extreme economic uncertainty.  In the midst of all of this, very few were predicting the extraordinary speed and strength of the market rebound soon to follow. 

However, by the end of the year, even while second and third waves of the pandemic were battering the USA and Europe, and with a contested US presidential election where the sitting president was refusing to accept the results, global share markets were moving sharply back into positive territory.

The key difference now was that Covid vaccines were beginning to be distributed in the northern hemisphere.  And even though we still don’t know how the post-Covid world will look or function (particularly in relation to international travel and tourism), the faster-than-expected arrival of the vaccines provided the impetus to push share markets to new heights.

In this most extraordinary year, it wasn’t interest rates, inflation, growth rates or profitability that were the main drivers of returns.  It was confidence.  In the first quarter, confidence quickly evaporated as we collectively began to fear for our lives and our livelihoods.  However, as we gradually readjusted to the idea that we had the capacity to protect ourselves and that governments everywhere were not going to stand idly by while their economies tanked, our fears slowly changed to hope and, finally, to optimism.

Although history will record 2020 as a year like no other, there were still a few lessons to take from this highly unusual year:

  1. Investing when the outlook looks bleak remains a profitable strategy. The share market is forward looking and if we always wait for the reassurance of improving news headlines, then it is likely the best gains have already been made. Anyone that bought shares while the market was going down in March ended up with a great return for the year.

  2. A weak economy doesn’t necessarily mean a weak share market. As economies were shutting down and the business outlook was nosediving in March, there were projections both here and overseas about possible double digit unemployment rates. That can’t possibly be a good time to invest, right? Wrong. Figure 2 below summarises the performance of US shares over the last 73 years (1948–2020), based on the prevailing unemployment rate:

    Figure 2: US unemployment vs S&P 500 index returns

    US unemployment


    S&P 500 annualised returns




    7% - 9%



    5% - 7%






    Although US unemployment exceeds 9% relatively infrequently (around 5% of the time), these periods have, counterintuitively, coincided with the best average US share market returns. We saw a continuation of this pattern in 2020. The US economy hit 14.7% unemployment in April, just as the share market there commenced its strong upswing.

  3. Outcomes always seem obvious in hindsight. Looking back and seeing the global share market having rallied over 73% off its low, it’s tempting to tell ourselves that we knew this would happen. But on 23 March, no one could have predicted the timing, size and speed of this market recovery. Governments around the world played a very significant hand in this by collectively pumping trillions of dollars of stimulus towards businesses and individuals. While this flood of financial support could not stop the virus, it was able to steer us away from an economic depression. And the impact this has had on investor confidence, and asset prices, is all too apparent from the share market performances witnessed over the last nine months of 2020.

After what we all went through in 2020, it would be a truly brave (or foolhardy?) person who attempted to provide a detailed roadmap for the year ahead. Although the arrival of several Covid vaccines gives us cause for renewed optimism, the list of reasons for investor uncertainty heading into 2021 remains long.

For starters, we still have a global pandemic. We still have intermittent lockdowns, travel restrictions, volatile markets and extreme political turbulence. We have considerable uncertainty over large parts of the economy and of job sustainability. We also now have new record levels of government debt, and questions over how it will ever be repaid. In the meantime, we continue to have historically low interest rates and the likelihood these will stay low for an extended period. It’s a sobering list. But before we get too despondent, we should remember that most of these issues, in one form or another, were also present in 2020 and, for the last nine months of that year, investors enjoyed great returns.

We don’t know what 2021 will bring, but we do know it will bring its own unique set of challenges. If 2020 taught us anything it was that, through no fault of our own, we can sometimes be in situations that we are uncertain how to handle. And when those situations have the potential to severely impact our investment or retirement plans, then we really need to be able to make the smartest decisions possible.
The idea that share prices can sometimes fall significantly and yet still manage to rebound is not new. In fact, on average, we expect share market returns to be negative once every three or four years. But we continue to allocate to shares because it’s in the share markets that we expect the bulk of our long term returns to be generated.

It never stops being uncomfortable when share prices are falling but the best advice, even at those times, is to stick to your plan. For all long term investors who experienced the awful first quarter in 2020, the decision to stay invested was very likely their best investment decision of the year.



For a detailed review of the asset class performances for the quarter, see ‘Key market movements’ or click here to view the full newsletter in PDF.



Information contained in this newsletter does not constitute personalised financial advice because it does not take into account your individual circumstances or objectives. You should carefully consider whether the Synergy investment portfolios are appropriate for you, read the applicable offer documentation, and seek appropriate professional advice before making any investment decision. The information in this newsletter is of a general nature only. Investors should be aware that the future performance of the Synergy investment portfolios may differ from historic performance. Details are correct as at the date of preparation and are subject to change. The investment objectives and strategies of the Synergy investment portfolios may change in the future.

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