Important information: 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.

I’m sure there will be plenty of competition for 2020’s word of the year. There are the obvious frontrunners - ‘unprecedented’, ‘lockdown’, and so on - but perhaps one dark horse in with a chance for the top spot is ‘uncertainty’.

Few words have captured a national mood as well as this one. Initial uncertainties over what exactly we were dealing with have morphed into a host of lockdown-induced anxieties and ever-sharpening economic woes, as the pandemic leaves its mark on people’s livelihoods.

All this uncertainty has made it tough for investors to know what to do with their savings. But one way we can try to make sense of 2020 is by looking at the year’s economic data. For those fed up of recurrent images of facemasks and social distancing, a good graph can capture the strangeness of 2020 just as well. Here are three which can shed some light on this most peculiar of years:

1 - A different kind of recession

None

Source: Refinitiv, 30.9.20 

In economic terms, this year will probably go down as one glaring outlier.

The dark blue line here shows what happened to the US’ largest index, the S&P 500, in the months before and during the 2008 global financial crisis. The trajectory, as you’d expect, is unrelentingly negative.

The lighter line shows what has happened since February 2020 to the S&P 500 and, taken as a whole, things appear to have gone pretty well. There’s a large dip right at the start (more extreme than anything endured over 2007-2009), but from then on, the US has gone a long way to make up any lost ground. Despite another onset of volatility over the past month as investors’ faith in the Big Tech stocks that dominate the market wavered, and an eventful build-up to the US election tested their confidence, the index continues to rise.

Not all recessions follow the same path, but the bounce back in certain equity markets this year has jarred glaringly with the obvious realties of the situation. Trying to reconcile the two has made investing in 2020 a tough task.

2 - But that’s not the global story:

None

Source: Refinitiv, 30.9.20

Unfortunately, a similar recovery has not been felt closer to home. UK investors have long felt cautious about their home market, and this year has done much to compound their anxieties. Things could get worse before they get better, as companies feel the full economic impact of the virus this winter, and the spectre of a no-deal Brexit edges ever closer on the horizon.

Of course, this graph doesn’t paint the whole picture. 2020 reminds us that equity markets do not represent the overall health of the economy. While stocks have gone on to recover well in some cases (even in the UK), the thousands who have been left unemployed or have had their hours or wages cut will tell you quite a different story. No graph can truly capture the pandemic’s devastating impact on many people’s lives.

3 - An unequal crisis

None

Source: Refinitiv, 30.9.20

Part of what has made this year’s economic response so strange is the uneven effect the virus has had on different sectors. Where some industries have been brought to a halt, others have profited from our changing lifestyles.

One of those hit hardest has been aviation. As the graph above shows, US domestic flights were brought to a standstill at the start of this year. Something similar happened in the immediate aftermath of 9/11, when passengers were initially reluctant to take to the skies, but soon returned to pre-2001 habits. The response this year has been far more drastic and, we can presume, longer lasting.

Airlines have not been the only companies to have struggled this year - the futures of many others look similarly strained. All this uncertainty can be daunting for investors. Fortunately, Fidelity Investment Director, Tom Stevenson, will next week be going over his latest quarterly Investment Outlook to answer your questions and shed some light on what may or may not unfold over the next 12 months.

Going through these charts and more he will shed some light on valuations (invaluable in light of the tech stocks boom in the US), third-quarter earnings season, Brexit and, of course, the US Presidential Election. He will also go over the probable shape of the recovery and argue that something very different from the touted ‘V’ is really on the cards.

You can send Tom your questions in advance (by Monday 12 October), and watch the Outlook, here.

Five year performance

(%) As at 30 Sept 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
FTSE 100 18.4 11.2 6.1 3.2 -18.1
S&P 500 15.4 18.6 17.9 4.3 15.2

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns as at 30.9.20, in local currency

Important information: 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. 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.

Topics covered

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