As we move into the second month of 2021, there are still uncertainties about what lies ahead. However, there are some solid reasons for investors to feel optimistic. Vaccines are being shipped out, and around the world, people are rolling up their sleeves to get the shot. The World Bank and International Monetary Fund (IMF) are projecting global economic growth, and Joseph R. Biden was installed as president of the United States.
It’s been a little more than one year since Canada announced that its first patient, diagnosed with COVID-19, was in a Toronto hospital. A lot has happened since then. While many Canadians are in lockdown for the second time, the end may be in sight. The first wave of vaccinations has taken place in communities across Canada, and more are scheduled in the coming months.
Annual events are once again being planned for the spring and summer months, and people will return to the leisure activities they enjoyed pre-pandemic, such as outdoor concerts, live theatre, sports events, attending conferences, and travelling to visit friends. This increased activity and supplemental spending will boost the economy, here at home, and in countries worldwide. As businesses were shuttered and people stayed home much of last year, global spending decreased, and as a result, bank balances increased. It is estimated that going into 2021, Americans have close to $2 trillion in extra cash saved. As the economy re-opens, spending is expected to surge, and that will fuel economic growth.
The World Bank estimates global growth of 4%, and the latest world economic output growth projections from the IMF estimate 5.5% in 2021. The IMF projects growth in the U.S. to reach 5.1%, 4.2% in the Euro area, 4.5% in the UK and 3.6% in Canada.
In the United States, on January 27, the Federal Reserve pledged to keep interest rates at their current, near-zero level until there is a full economic recovery from the pandemic-induced recession. In Canada, the Bank of Canada’s governing council reiterated its commitment to keeping policy interest rates at their lower bound level to maintain their target 2% inflation rate.
The S&P 500 started the month of January lower than the previous month, as the December numbers were buoyed by end-of-year, tax-loss, selling. It ended January flat after a tumultuous few days of trading at the end of the month. The S&P TSX was flat on the month. The MSCI World Index, which reflects returns for developed equity markets worldwide, ended the month on a lower note.
We are not out of the woods yet! Markets will continue to be volatile for some time, and if we learned anything from 2020, it’s that life and economies are hard to predict. However, one fairly certain thing is that a broadly diversified portfolio of investments offers protection from market volatility. It’s also important to stay invested and focus on your investment goals.
Should you have any questions, please do not hesitate to contact your NPW Advisor.