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.

The stock market has quietly had a stonking start to 2021 - but this week will provide a series of tests of investors’ confidence.

Economic updates in the US, China and here in the UK will provide insights as economies prepare to reopen from lockdown. Expectations are high and, based on the performance of shares this year, a lot of good news has already been priced in.

The S&P 500, the index covering the largest companies in the dominant US market, has now sailed through the 4,000 mark and sits 4,128 as the week gets underway. It means the index has risen by 10% in 2021 so far and is now above the average level that analysts surveyed by Bloomberg believed would be reached by the end of the year. In other words, US shares have achieved a year’s worth of predicted growth in four months.

The strong performance of shares reflects recent improved predictions for growth in the world economy, in particular from the International Monetary Fund (IMF) which last week forecast that activity would continue to grow strongly for the next two years.

If those optimistic predictions are to come true, data such as those due this week will need to live up to expectations.

On Thursday the US Commerce Department will report retail sales data which should show the early effects of the country’s Covid relief measures. The $1,400 cheques sent to low and middle-earning Americans have been sitting in bank accounts and a question remains over exactly how much of that money will now translate into extra spending. A strong showing could indicate that households intend to get back to normal levels of spending, fuelling the recovery.

Meanwhile, in the world’s second biggest economy China, GDP data on Friday will confirm growth in the first quarter of 2021. Economist expect a giant 18.6% uplift, thanks to a favourable comparison with a year ago when China registered its first big economic blow from the pandemic. Forecasts of growth that rapid leave lots of room for disappointment but even a figure underneath that level is likely to indicate a very strong recovery.

And here in the UK, a growth reading for the month of February is released on Tuesday. It is expected to show GDP growing once again - if only by 0.4% - after the 2.9% contraction registered in January. The period in question will not, of course, reflect an increase due to lockdown restrictions being eased, as is happening this week. A strong performance, however, will encourage the market

that the UK can turn its advantage in vaccine numbers into head-start on economic recovery as well - in particular versus European nations where jabs have been harder to come by.

With markets having been in such upbeat mood, investors should expect a little profit-taking and perhaps some volatility as well as the year progresses. The current high valuations for markets will be tested again and again.

We’ll be adding our own voice to the market commentary this week when Fidelity Personal Investing releases its latest Quarterly Investment Outlook. The outlook’s author Tom Stevenson has collected views from experts inside Fidelity to take a snapshot of where markets are now, and where they may be headed in the months ahead.

You’ll be able to read the Outlook for yourself when it is published later this week here, where you’ll also find a video Q&A conducted with Tom. This week’s MoneyTalk Podcast, hosted by me, will also focus on your questions.

If you’d like to submit a question ahead of tomorrow, you can do that here.

Five year performance

(%) As at
31 March
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
S&P 500 17.2 14.0 9.5 -7.0 56.4

Past performance is not a reliable indicator of future returns

Source: Refinitiv total returns with net income reinvested in USD.

Glossary:

GDP: Gross domestic product is the market value of all officially recognised final goods and services produced within a country in a year, or other given period

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. Investments in emerging markets can be more volatile than other more developed markets. 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 a Fidelity adviser or an authorised financial adviser of your choice.

 

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