US stocks achieve the fastest recovery in history:
Wall Street experienced a wild year amid historical volatility and record performances. The S&P 500 index ended the year with gains of 16.3%, or a total return of about 18% including dividends, while the Nasdaq, index backed by technology stocks rose 43.6%, and finally, The Dow Jones Industrial Average gained 7.2%. The gains were supported by optimism that the US economy and corporate profits will bounce back again in 2021 following the distribution of vaccines which helped keep prices afloat.
The S&P 500 index fell by 8.4% in February and then dropped 12.5% in March as a result of the shock from the Covid pandemic which led to companies closing their doors in the face of a possible spread of the virus as well as government restrictions which forced people to work, shop, and does nearly everything from home. Soon after, trading became volatile and the Dow Jones index was swinging around 2000 points on some days while the S&P 500 was moving up or down by 1% more than the average daily range since 1950. The VIX, which measures how much volatility investors expect from the S&P 500, rose to a record high of 82.69 in March and has remained above its historical average for much of the past year. Five months later, the market managed to recover all of its losses.
Wall Street stocks didn't stay down for long, thanks in large part to unprecedented actions by the Federal Reserve and Congress to prop up the economy. Big tech companies like Apple and Amazon jumped on investors' appetite and the S&P500 gained 12.7% in April. From there, Markets have detached from the rest of the still-tottering economy as vaccine development progresses and analysts and economists are starting to see an end to the pandemic.
Will the US economy recover in 2021?
The Covid pandemic has put the American economy in its worst state since the Great Depression, with the gross domestic product falling by 32.9% in the second quarter, which is considered the largest contraction ever. Also, about 22 million Americans found themselves unemployed and the unemployment rate rose to a record level at 14.7%, according to data from The Ministry of Labor. At this point, the US Federal Reserve and the Treasury Department reacted by introducing stimulus packages, which included 1,200 dollar checks for individuals, followed by the second round of 600 dollar checks that were settled last month. It is clear, therefore, that the economy is likely to recover further this year, but of course, as long as the pandemic remains under control and measures are taken to stop or limit the spread of the virus.
In general, economists expect 2021 to be a stronger and less volatile year for the American economy, especially with vaccines being rolled out to help against Covid. Goldman Sachs boosted its GDP forecast to 5% for the first quarter and 5.8% for the whole year, which is a more optimistic scenario than the Fed’s expectations of 4.2%. The labor market is also expected to improve with a decrease in the unemployment rate to 5% compared to the last reading in November of 6.7%. Achieving such results will depend primarily on the virus and its evolution.
Finally, the upcoming Georgia state elections on Tuesday, January 5, 2021, will witness a decisive race for who will have control over the US Senate. The outcome will determine the extent to which President-elect Joe Biden will be able to pass his economic and political agenda, and the result will also affect the tax future of individual Americans as well as companies, as it could lead to the Democrats winning the cancellation of Trump's tax cuts, which Trump reduced to 21% from 35%.
Challenges and developments awaiting President-elect Joe Biden:
1- Recovering from the Covid pandemic:
The US President’s handling of the pandemic, from the point of view of many Americans, was not serious, which caused a significant increase in the number of deaths and injuries, and if the United States released those numbers; it could be a major reason for Trump losing the presidential elections. Therefore, the Covid file is one of Biden’s most important priorities especially when it comes to improving the numbers of those suffering from Covid, which could be in his favor given the rollout of the vaccines. All of this should pave the way for an economic recovery, especially after revealing many previous economic weaknesses that the new administration has enough time to address, which will make Biden look like a superhero If he succeeds in dealing with all of this.
2- Managing the China file:
It is expected that Joe Biden will adopt a policy of holding the stick in the middle in his dealings with China, which is considered the strategic competitor of the United States and whose economy is expected to outperform and become number one by 2028, according to strategic studies. Furthermore, Biden may look to maintain the tariffs imposed by President Trump and the first stage of the trade agreement, but in return, will be keen to rebuild at home while working with allies and partners to protect the technology and financial sectors.
3- Climate change is a top priority:
This file may contribute to ensuring Biden's victory in a second presidency during the next election for the simple reason that, despite its great importance in achieving economic and financial stability, was not previously of interest among American policymakers. The biggest evidence of this is Biden's keenness to rejoin the Paris Agreement on the first day of his presidency and the announcement by his transition team of his commitment to lead efforts to make every major country a priority in dealing with climate change as an economic and financial issue.
- Biden's options for key positions:
There is no doubt that the management team and the people who have been and will be selected pose a special challenge for managing domestic and foreign policies as well as having to balance between achieving national security and strengthening the economy.
Uncertainty in the oil market
Oil prices were damaged during 2020 in a way that we have never seen before. The Covid crisis led to an unprecedented decline in the global economy where oil prices fell for a short period of time to below 0 before starting to recover with accelerating momentum. Nonetheless, they are still much lower than they were in early 2020. During that year, Brent crude recorded a decline of 16%, while Nymex crude recorded a decline of about 20%. Given the continuing uncertainty caused by the high rate of infections from Covid, the emergence of a new strain of the virus, and despite the start of distributing vaccines, a set of factors may determine the future of prices:
Energy Demand Improvement:
The International Energy Agency expects the average oil demand to rise much more than last year, although it will remain below the record levels seen before the pandemic, of 100 million barrels per day.
OPEC and its allies:
The OPEC meetings in 2020 witnessed turmoil over the cut quotas that members must abide by, especially with the United States refusing to commit to any reduction. This confusion constituted a major reason for a historical decline in prices, and in general, OPEC and its allies will meet again on Monday, the fourth of January, to discuss an increase in production by 500,000 barrels per day.
Political and Economic Tensions:
Many oil-producing countries witnessed tension in 2020, especially after the attack on one of the most important oil companies in the world when terrorists attacked the sites of Saudi Aramco. Also worth mentioning is the tension in Libya and several other regions.
Case and point of view:
There is no doubt that the trade dispute between the United States and China on the one hand, and Britain’s formal exit from the European bloc on the other, will likely lead to new trade alliances. The first group is led by the United States with Britain and perhaps Turkey, while the other group is led by China and with it, the European market and other countries. This was confirmed by official statements which were quickly announced by international news agencies through senior government officials. They include:
A Chinese government official said that Chinese companies will receive binding commitments to access the European Union market under a new investment agreement, while China will open its financial, manufacturing, and services sectors to the 27-nation bloc.
Chinese President Xi Jinping said Wednesday that the upcoming investment agreement with the European Union will provide larger markets and a better business environment for Chinese and European investments, the official Xinhua news agency reported.
Britain and the United States on Wednesday signed an agreement on customs operations that ensures that trade will continue to flow smoothly between the two countries when Britain fully exits the European Union at the end of the year.
Financial Times Sunday, December 27: Britain and Turkey will sign a free trade agreement next Tuesday, the first of its kind since British Prime Minister Boris Johnson reached a new trade agreement with the European Union.
Therefore, this file is added to the most important events expected for this year, and we will monitor the implementation of these agreements, and whether they will generate new tensions, divisions, and blocs that may lead to new uncertainty.
The main levels as well as the expected resistance and support levels for the most important global indicators. This chart is useful for investors planning on holding long-term positions and may not be suitable for those who rely on short term speculation:
The pivot points and the expected resistance and support levels for commodities, metals, and some currencies. This chart is useful for long-term investors and may not be suitable for those who prefer short-term trading:
Summary of the performance of the most important sectors in 2020
Top lessons and experiences from 2020 and tips for 2021:
1- The market will do what the market wants to do, in the sense that it does not get too busy with justifications and the interpretation of every small and large event, as evident by a market that reached record levels during the pandemic, closure, and economies that were in a state of free fall.
2- History shows that the stock gains of 2020 are unlikely to happen again. Nonetheless, significant gains can be achieved by trading within major trends and key support and resistance levels.
3- At the moment, the stock market could still be heading higher but corrections are possible. Main indicators and leading stocks are showing positive signals at the moment.
4- Try to determine or distinguish between the price trend and the expected corrections, as it can be very useful.
5- Focus on blue-chip stocks because usually their buy signals are correct, and the evidence to that is the Nasdaq, which nearly doubled from its March lows, outpacing the S&P500 and the Dow Jones for the entire year. Investors focusing on blue-chip stocks could have generated much greater returns.
6- Do not assume which stocks will be the biggest winner. The ones that rose the most during 2020 will not necessarily gain or lose. Rotation in stock markets is expected.
- You need to be always prepared. Do your homework and research over the weekend and find the stocks that you believe will outperform and give you good returns with low risk.
8- Buying is based on breakouts in a market that is moving in an upward direction. Avoid buying in declining markets as your assumption that the correction has ended could be very wrong.
9- Do not get attached to a group of stocks. Rotations and exchange of roles are very common in the stock markets.
10-After buying stocks, holding gains becomes a challenge. Are you trying to secure big gains or would you rather take your profit at 10% or 20%? The best solution is to realize profit gradually or at least use the medium-term moving average for profit-taking.
Again, the market will do what it wants. It won't care much about your opinion. Be a friend of the market, and be prepared, decisive, and flexible.
Amman Stock Exchange Profile
The companies whose share prices have increased compared to the companies whose share prices have decreased