Markets have emerged from their Christmas break in good cheer with UK shares leading the way as the end of 2020 comes into sight.
The London Stock Exchange had been closed since lunchtime on Christmas Eve, when the Government announced an even wider lockdown following the discovery of more infectious new strains of the Coronavirus. That had raised expectations that the final few days of 2020 would bring even more pain for investors.
As it was, sentiment improved significantly after news that the UK finally struck a deal with the EU which sketches out a trading relationship after the end of the transition period on 31 December. Meanwhile, in the US, Donald Trump signed a $900billion Covid-19 relief package as well as £1.4trillion of renewed government funding, further boosting American markets and taking the Dow Jones Industrial Average to a new record.
There may be more wrangling in Washington in the coming days as Senate Republicans decide whether to agree to the outgoing President’s demand that relief cheques for citizens rise from $600 to $2,000. Markets, however, seem more concerned with the overall stimulus package, which now seems in place.
The overall picture as we head to the turn of the year is of markets at their most optimistic since the heavy falls recorded at the start of the pandemic. The FTSE 100 rose 2.2% on Tuesday morning to reach 6,650, its highest since March, while the more domestic-focused FTSE Small-cap Index also rose 2%.
As we move into 2021, attention will undoubtedly shift to governments’ efforts to roll-out the vaccine and reopen their economies from lockdown. That process could take months and there are bound to be bumps in the road, so volatility is likely to continue even if markets seem content that a vaccine will soon come to the rescue.
The lesson for investors should be to tune out of the day-to-day developments of the news, whether that’s on the bleakest days or on mornings like today when optimism abounds. In other words, to keep calm, and carry on investing.
If you can make them, regular contributions into investments like a pension mean that you’ll take advantage of dips in the market to buy more assets for your money. If markets can recover, you’ll then be in a better position than if you had sold out.
2020 has been a difficult year and that looks to continue into 2021 as well. It requires, as always, a level head, a diversified portfolio and a long-term view.
The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Eligibility to invest into a pension and the value of tax savings depends on personal circumstances and all tax rules may change. Withdrawals from a pension product will not normally be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.