Then the virus struck. As it swept across the globe, large swathes of the economy were closed down by government diktat. Numbers of new cases and fatalities from the virus led the national news in just about every country. Stock markets tumbled. Policymakers, with memories of the global financial crisis fresh in their minds, took actions that were big, bold and decisive. Never before has such massive economic stimulus been delivered so quickly. Huge increases in government spending, tax cuts and loan guarantees were combined with central bank intervention that went far beyond the traditional boundaries.
Forecasters were slow to recognise the scale of the recession and equally slow to appreciate the speed and scale of the bounce back. Charts of economic surprises, showing the degree to which releases differ from consensus expectations, went from record weakness to record strength. But equity markets were ahead of forecasters and began to recover at the end of March following action by the Federal Reserve and the reversal of technical selling.
This was followed by optimism that virus could be successfully suppressed. In China, new cases had fallen to very low levels; fresh outbreaks of the virus were isolated and swiftly dealt with. Lockdowns were eased and economic activity was recovering rapidly. By the summer, Europe appeared to be following a similar path. The US was having less success but the path to virus suppression seemed clear. That has now changed: China is the exception rather than the rule and the virus is once again threatening renewed recession even before economies had have yet to fully recovered from the last one. Yet the vaccine has brought genuine hope that the virus will be beaten, and that economic activity can recover fully during the course of next year.
Financial markets have been dominated by these events. There has been wide divergence in returns across asset classes, within equities and at different times in the year. MSCI World equites may have returned some 13% year-to-date but by 23 March they had lost 38% of their value at the start of the year. Since then they have almost doubled. Limiting risk in the first period and adding to it in the second was the key to performance. Another, rather simpler, strategy was to buy and hold the familiar US mega-cap growth stocks. They outperformed during the bear market and the upswing, a rare phenomenon. Tesla was one of the most outstanding examples of the tech theme and now has a market cap of $0.6 trillion, roughly the same as the combined market cap of all other auto companies combined. $100 invested in the shares at the start of 2013 would now be worth $9,000.