The new year is traditionally a time for looking forwards, for hopeful resolutions, for celebrating. But for economists and investors, the annual forecasts for 2021 might be something of a painful reminder of exactly how much they failed to foresee.
The pandemic quickly made a mockery of all projections. An entertaining analysis of US chief executives’ statements during 2020 by data company Sentieo for the New York Times showed a 70,000% year-on-year rise in the use of “unprecedented”, while “humbled” tripled – perhaps code for “it wasn’t my fault, so you should still pay me the same”. To be fair, though, in March it really did feel like nobody had a clue what to do – even governments, who are meant to have “pandemic” firmly on their risk radars.
But investors have not been punished too harshly for their failure to foresee the outbreak. London’s FTSE 100 benchmark declined 15% during 2020 – the worst performance since the financial crisis in 2008, but hardly as eyecatching as the wider economic collapse, which was on a scale not seen in the UK since 1706. In the US, the pandemic added to the astonishing dominance of the big tech companies such as Apple, Amazon, and Google, meaning that the S&P 500 has actually gained about 15% in 2020.
For 2021, the big question is exactly how much is left in the recovery that has been taking place since the dark days of March. The positive results for what is turning into a host of vaccines appear at least to have laid the groundwork for a return to something like normality. Despite the travails of the last year, analysts are sounding notes of cautious optimism for the year ahead.
And at least one uncertainty has been put to bed. After the sound and the very considerable fury, the UK left the EU for practical purposes at 11pm on Thursday – it was central Europe that enjoyed the romance of uncoupling at the stroke of midnight, central European time, in a last sting of the negotiators’ tail. The jury is still very much out on the questionable merits of the trade deal, but at least businesses know exactly how much extra paperwork they are dealing with – albeit with a shamefully tiny amount of time allowed for them to prepare.
So, to stock predictions. Nick Nelson at UBS was among the braver UK analysts to actually put a number on what will happen in 2021: he said the FTSE 100 would end the year at 7200 points, roughly a 10% gain compared to the 6460 mark at the end of 2020.
In the US some investors are more bullish: Goldman Sachs predicted the S&P 500, the US benchmark, would end the year near 4300 points, an increase of about 15%, even if a clutch of other Wall Street investment banks think 3900 is a more realistic target.
But if things do not pan out quite as hoped, at least we know who to look to. Central banks have been the only game in town – and the referee, to boot – since the global financial crisis and its drawn-out aftermath. The pandemic showed that the US Federal Reserve, the European Central Bank and the Bank of England were more ready than ever to do anything to prevent a collapse. In the context of the last decade-and-a-bit, betting that they will continue to prop up markets for as long as they can is the nearest we have to a sure thing.
