When it comes to markets, the story in 2020 was COVID-19. While global economies contracted in response to pandemic measures, stock market performance was strong despite the February crash. Although the TSX posted only a small gain of slightly over 2%, the S&P 500 gained more than 16% and the technology-heavy NASDAQ gained more than 40%. This gap between the economic and stock market performances can largely be attributed to the fact that for a significant part of the year, the five largest stocks in the S&P 500 by market capitalization,  Apple, Microsoft, Amazon, Facebook and Alphabet/Google, massively outperformed the other 495 stocks. At their early September peak, these five stocks represented nearly 25% of the S&P 500, so their hefty outperformance lifted the overall index.  

Looking ahead to 2021, COVID-19 vaccines should make it a year of global economic recovery, with growth expected to strengthen as pandemic-related disruptions fade and vaccination continues. Markets are expected to continue to post gains, although gains could be tempered by news of renewed lockdowns in Europe and North America as virus cases escalate, logistical difficulties in distributing the vaccine and negative economic growth in early 2021 if unprecedented government support measures are unwound too quickly. Geopolitics could also deliver negative surprises from China, Iran and Russia. 

In Canada, our 2021 economic outlook is similar to that of other developed countries. After the largest economic contraction since 1945, the economy is expected to grow enough to largely offset the losses of 2020, though the strength of the recovery will be heavily influenced by the evolution of the pandemic. Strong consumption and a rebound in exports will give the Canadian economy a boost, as will the bringing forward of government investment projects. Canada could potentially benefit from major investment by the Biden Administration in greener sources of energy, though the energy sector could be hurt by lack of approval for pipelines.