2020 a Year to Forget?

How does one even begin to wrap up a year like 2020? Good thing we don’t have to as we’re only commenting about the markets in December. The rally that began in November after the US presidential election appeared to wane in December, although the S&P 500 finished the calendar year of 2020 higher by +100 points than our forecast of 3,650, closing at 3,756.07. Whereas the S&P/TSX fell short of our 18,200 call, finishing the year at 17,433.36. Whether the TSX was mired in December by investor confidence due to an onslaught of negative COVID press and another round of strict lockdowns, or massive tax loss harvesting from any one of its’ three major sectors (Energy, Materials, and Financials) remains to be clear; your guess is as good as ours. Perhaps, it was simply investor fatigue, or all of the above. Regardless, the TSX managed to eek out a +2.17% total return in 2020, whereas the S&P 500 posted an impressive 13.03% Total return (C$) That being said, December in particular was a quiet month by comparison to the previous one.

 

Manufacturing data is in and the sector ended the year on a strong note. The ISM manufacturing PMI unexpectedly rose in December, up 3.2 points to 60.7, a level not seen since August 2018. A level above 50 indicates an expansion of the manufacturing segment of the economy. In Europe, the Euro Area manufacturing PMI came in at a two and a half year high, with Germany posting the highest in nearly 3 years, and France at a 1 year high. The UK hit a three and half year high and Japan expanded for the first time since April 2019. Even China, while it slowed, is still growing. New orders rose 2.8 points to 67.9, which is the 2nd highest level since Jan 2004. Production rose 4 points to 64.8, the highest level since Feb 2011. Inventories, supplier delivery delays and employment, all contributed to the headline gains. Of the 18 industries surveyed, 16 checked the “Yes, we are expanding” box, which was unchanged from November and the most since early 2019.

The positive theme that can be extracted from this report were the comments, which ranged from shortages of inputs, either for workers or supply chain issues, or customer inventories being too low, but while many services have been delayed, the key takeaway is “many customers are not cancelling outright, and business picked up last month.” Clearly, while the services side of the economy has been hurt by restrictions and closures, lockdowns and social distancing has boosted demand for stuff, giving the manufacturing side of the economy a boost, like a ‘vaccine’ or ‘catalyst’ for next phase of this bull market.

 

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