The past few weeks have been very positive for equities. Buoyed by vaccine developments and news of a Biden win in the US Presidential Election, many equity market indexes have hit new all-time highs. At time of writing, the MSCI World Index is up almost 65% from its low point in March, and 15% up from levels in late October / early November. Meanwhile, the VIX Volatility Index (measure of market volatility) has continued to decline and is now at (or close to) its lowest levels since the start of the pandemic. Rising prices and falling volatility are bullish signals from Mr. Market.
Equity markets are now pricing in a faster economic recovery than had previously been expected. The more positive backdrop from the vaccine news and US election outcome has led to upward revisions to economic forecasts. World GDP growth estimates for 2021 have been upgraded to an expansion of +5.2% year-on-year (YoY). For 2022, global growth is now expected to hit +3.8% YoY.
Last week in the US, Democrats and Republicans moved towards an agreement on new fiscal stimulus measures. The latest offer from the Treasury Secretary is for $916 billion in new support measures, which House Speaker Nancy Pelosi says is closer to what Democrats have been requesting – however, she added that there are still some details to ‘iron out’. Progress on this is positive for markets which, despite the good vaccine news, are acutely aware that the virus and related government restrictions on activity continue to inflict a heavy toll on the economy. Stimulus measures are likely to still be needed for the next few months at least.
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