As the real economy deteriorated, stock markets reacted positively to these measures, particularly the U.S. market and especially the Nasdaq. Several factors explain this:

1. The shares of technology giants like Facebook, Amazon, Apple, Netflix, Google (Alphabet) and Microsoft, which represent more than 20% of the S&P 500 Index and the Nasdaq, were not hurt by the lockdown and telework, and many even benefited.
2. The sectors most affected by the health crisis, such as restaurants, travel and recreation, do not have a significant weight in stock market indices, even though these service sectors employ millions of workers.
3. The drop in interest rates was positive for stock prices.

In Canada, a stock like Shopify, which benefits from consumers’ enthusiasm for online shopping and which has a significant weight in the Canadian index, contributed 4.49% to the return of the S&P/TSX Index, which was up 3.81% at November 30, 2020. So Shopify’s stock accounts for the entire return of the index, and even more.

The economic recovery that followed was as sharp as the decline that preceded it. In fact, the recession was remarkable for its short duration. The recovery has stalled in recent months, however, as some industries such as the restaurant and travel industries are struggling to bounce back.

The month of November was marked by two important events: the result of the U.S. election and the announcement of the effectiveness of several vaccines.

The results of the U.S. election came as a big surprise as the markets expected a major victory for the Democratic Party. Instead, we ended up with a Democratic president and a Republican Senate. This combination will force Republicans and Democrats to negotiate, and above all it will prevent the implementation of more “socialistic” policies advocated by Democrats such as tax increases for businesses. The new U.S. administration should be less belligerent internationally and return to multilateral policies, while still maintaining a strong position against China.

The announcement of the first vaccine from Pfizer-BioNTech gave global equity markets a boost with the prospect of a return to normalcy. The following week, the announcement of the efficacy of Moderna’s vaccine also had a positive effect, followed by the news on November 23 of the Astra-Zeneca and Oxford vaccine. However, the impact on the markets waned as the new vaccines published their results.

2021 should favour an eventual return to normal. Until then, the spread of the virus continues unabated, pushing some governments to implement partial lockdown measures. This return to lockdown without additional fiscal support will likely undermine the confidence of consumers, who will reduce their spending. The situation could slow the economy again, which would hurt more cyclical businesses.

We remain cautious, keeping an eye on the stocks that benefit from telework and the ones that will benefit from a return to normalcy.

Earnings estimates for next year are on the rise, which bodes well for the stock markets, but the strong market rally since the announcement of the vaccine results leads us to believe that investors have already discounted a part of these future profits in their valuation.

As for bonds, a strong economic recovery should favour a rise in rates, but central banks could carry out transactions in the markets in order to limit the rise. Currently, central banks are prepared to let inflation exceed their projected target before approving more restrictive monetary policies, so as not to harm the economic recovery.

While the past few years have been dominated by growth stocks, value stocks could rise significantly and perform better in the future, driven by a strong global economic recovery spurred by fiscal stimulus.

The energy sector, although cyclical, might not participate in the economic recovery as strongly as it has in the past. Increased demand for electric vehicles and the growing intention of the public and industry to reduce carbon impacts, as well as the inclusion of ESG criteria in portfolios, could limit the performance of the energy sector.

Expecting higher returns for more cyclical value stocks also means that small caps, non-U.S. issues and emerging market equities should outperform the overall U.S. market in the near future. Again, vaccination and fiscal programs will be key to this recovery.