Market Review

December 2020

Global Markets Monthly Update


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Key Insights

  • Equity markets hit new highs in December following the rollout of the first highly effective coronavirus vaccines.
  • The passage of new fiscal stimulus in the U.S. and of a post-Brexit trade deal in Europe also supported sentiment.
  • The worsening pandemic and tightening lockdowns in many countries may have restrained the gains, however.


The major equity indexes reached record highs in December and closed out a robust year. The small-cap Russell 2000 Index led the gains, followed by the technology-heavy Nasdaq Composite Index, which recorded its best annual return since 2009. For the month, financials performed best within the S&P 500 Index, while the small utilities sector lagged with a modest return. An increase in longer-term Treasury yields weighed on bond performance over the month, but equity gains and hopes for faster growth in the year ahead helped credit-sensitive issues, particularly high yield corporate bonds. (Bond prices and yields move in opposite directions.)

Vaccine Rollout Boosts Sentiment

The rollout of the first highly effective vaccines against the coronavirus bolstered sentiment throughout December. Stocks rose early in the month, after the U.S. Food and Drug Administration (FDA) released data confirming that the Pfizer/BioNTech vaccine was 95% effective while resulting in few severe adverse reactions. FDA emergency use authorization soon followed for both the Pfizer/BioNTech vaccine and Moderna’s similar messenger RNA vaccine. Investors also appeared encouraged by reports on progress in different types of vaccines being developed by AstraZeneca and Johnson & Johnson, according to T. Rowe Price traders.

Sentiment appeared to waver at times, however, as the brightening outlook for an eventual end to the pandemic came against a grim set of current milestones. A predicted post-Thanksgiving surge sent hospitalizations to new highs in early December, while daily U.S. deaths from the virus crossed 3,000 for the first time. The nation’s largest state, California, announced new stay-at-home orders after becoming the epicenter of the pandemic, and gauges of retail foot traffic, airline passenger traffic, and other high-frequency data indicated that consumers were growing more cautious—even in areas of the country that had resisted aggressive containment measures.

Congress Comes to Agreement on New Coronavirus Relief Package

Improving prospects for another round of federal coronavirus relief also supported stock prices. Equities recorded their best daily gain on December 15 after Senate Majority Leader Mitch McConnell announced that the Republican-controlled Senate would stay in session until a deal on a new stimulus bill was reached. On December 21, both the House of Representatives and the Senate passed a compromise USD 900 billion relief package by wide margins, alongside an omnibus spending bill, to fund the government through next September. Together with support for small businesses and extended unemployment benefits, the bill included USD 600 direct payments to individuals, half the amount provided in the first relief package last spring. President Donald Trump surprised many by echoing complaints from Democrats that the amount was too small, proposing instead direct payments of USD 2,000, but he signed the bill on December 27.

Recovery Slows as Consumers Pull Back

The month’s economic data arguably provided evidence that the recovery was in danger of faltering without further support. Early in the month, weekly jobless claims jumped to their highest level since September, while the Commerce Department reported that retail sales and household incomes contracted 1.1% in November. Household spending also dropped by 0.4%, the first decline since April. Relatedly, the Conference Board reported that its measure of consumer confidence fell to a four-month low. Even the robust housing sector showed continued signs of cooling, with existing home sales falling more than expected (2.5%) in November. Manufacturing data offered a mixed picture. Durable goods orders increased by 0.9% in November, above consensus, but core capital goods orders—excluding aircraft and defense orders—missed expectations and rose only 0.4%. Previous months’ gains were revised higher, however.


Shares in Europe rose, lifted by the UK-European Union (EU) trade accord, an extension of ultra-loose monetary policy by the European Central Bank (ECB), and the approval of a U.S. fiscal stimulus package. The emergence of a new variant of the coronavirus increased the risk of a slower economic recovery and weighed on investor sentiment, however. In local currency terms, Germany’s Xetra DAX Index advanced 3.22%, Italy’s FTSE MIB added 0.76%, and France’s CAC 40 rose 0.60%. The UK’s FTSE 100 Index climbed 3.10%.

UK Extends Severe Lockdown Restrictions; EU Countries Start Vaccine Programs

The UK government extended its strictest restrictions across three-quarters of England, seeking to curb a surge in infections, hospitalizations, and deaths caused, in large part, by a new variant of the coronavirus. News of the variant ground to a halt movement between the port of Dover and France, which temporarily closed its border with the UK. Other nations also banned travel from the UK. High infection rates prompted other European countries—including Germany, France, Italy, Greece, and Belgium—to introduce tougher measures to minimize personal contact and mobility during year-end celebrations. The UK authorities and some EU countries began deploying a vaccine produced by Pfizer/BioNTech. The UK also approved the use of a treatment developed by AstraZeneca and Oxford University, in a bid to accelerate vaccinations.

UK Exits EU After Trade Accord Ratified

The UK exited the EU on December 31 after UK Prime Minister Boris Johnson and EU leaders agreed to a post-Brexit trade deal. The treaty came into UK law after Parliament voted overwhelmingly in favor of the agreement.

EU Approves Historic Budget; ECB Expands and Extends Stimulus Measures

The EU passed a EUR 1.8 trillion budget, which includes a EUR 750 billion coronavirus recovery fund, for 2021 to 2027. The budget was approved after Hungary and Poland dropped their objections to tying payments to rule of law principles. The fund will start distributing money to needy member states in the form of grants, raised via EU debt issuance, and loans.

The ECB injected more stimulus into the recessionary economy and forecast a slower eurozone recovery. Policymakers increased the Pandemic Emergency (asset) Purchase Programme by EUR 500 billion to EUR 1.85 trillion and extended it for another nine months to March 2022. They also agreed to provide banks with more ultra-cheap loans until June 2022, extending this program by a year.

The Bank of England held interest rates at 0.1% and kept the target for its asset purchase program unchanged, as expected. Policymakers reiterated that they did not intend to tighten monetary policy until there is evidence that “significant progress” is being made in achieving the 2% inflation target. The Swiss National Bank kept its key policy rate unchanged at 0.75%. Norway’s central bank left its main rate at 0% but signaled that an expected improvement in the economy could support a rate increase in mid-2022.


Japanese stocks gained in December, capping strong annual returns. The widely watched Nikkei 225 Average advanced 3.8% for the month and set a 30-year high. Within the Japanese equity market, as measured by the MSCI Japan Index, value stocks outpaced growth shares, while small-caps performed in line with large-caps. The yen strengthened versus the U.S. dollar and traded near JPY 103 at the end of the month.

Record Fiscal 2021 Budget

The Japanese government is planning a record JPY 107 trillion budget for fiscal year 2021. The proposed budget addresses coronavirus response initiatives, social welfare, and additional military spending. The spending plan is in addition to three extra budgets to combat the economic drag on the economy from the coronavirus pandemic. The third extra budget and the fiscal 2021 budget will be presented to the Cabinet together as a 15-month budget. Debt-servicing costs are forecast to total approximately JPY 24 trillion in fiscal 2021, an all-time high.

BoJ Leaves Rates Unchanged at the December Meeting

As expected, the Bank of Japan (BoJ) made no changes to its monetary policy stance at the December meeting. However, it did extend the corporate finance support measures through September 2021 and announced a review of its monetary policy, with the results expected in March 2021. The BoJ’s communication indicates that it will not change the current policy framework, including the policy rate and yield curve control, and, therefore, the focus is likely to be on the sustainability of monetary policy. Japanese government bond yields were little changed during the month, with the 10-year bond yielding 0.025% at the end of December.

Although the details remain unclear, Aadish Kumar, a T. Rowe Price international economist, thinks that there may be a shift toward more flexibility in the bank’s purchasing of exchange-traded funds (ETFs) and real estate investment trusts given the BoJ’s already substantial holdings in these markets. The BoJ is currently committed to increasing its ETF holdings at an annual pace with an upper limit of JPY 12 trillion.

Amid a Third Spike in Coronavirus Infections, Suga Likely to Postpone Snap Election

According to The Nikkei, Prime Minister Yoshihide Suga appeared unlikely to dissolve the lower house of Parliament and call for a snap election in January. In the face of falling approval ratings on the administration’s handling of the pandemic—the latest opinion poll for Suga’s Cabinet fell five points in November—the prime minister is expected to focus his efforts on containing the disease. The number of daily infections repeatedly hit record levels during the month. Suga is likely to postpone the snap election until mid-2021, when there are fewer uncertainties and, hopefully, an effective, widely available vaccine.

The Ministry of Health, Labor and Welfare intends to implement a three-tier coronavirus vaccine plan in February, which will prioritize heath care workers, the elderly, and people afflicted with diseases. Of these three categories, medical staff, totaling approximately 4 million, will receive the highest priority. The elderly (65 years and older), totaling about 36 million, will be given the second-highest priority.


China’s stock markets enjoyed a strong finish to the year, ending December at multiyear highs as investors anticipated stronger economic growth and earnings in 2021. For the month, the Shanghai Composite Index and CSI 300 Index of large-cap stocks rose 2.4% and 5.1%, respectively. For the calendar year, the Shanghai Composite Index advanced 14% while the CSI 300 Index outperformed the broader market significantly,
rallying 27%.

Bond yields fell in December, reversing a multi-month upward trend. The 10-year government bond yield fell nine basis points (0.09%) to 3.19%, encouraged by generous liquidity provisions from the People’s Bank of China (PBoC) into year-end, reduced issuance, and the move into consumer price index (CPI) deflation. In foreign exchange markets, China’s renminbi (RMB) rose 0.7% versus the U.S. dollar to 6.533, its best level since
June 2018.

At the Central Economic Work Conference in Beijing in mid-December, senior officials said that consumption and private investment would be more important growth drivers in 2021, replacing infrastructure and property investment. They announced an intention to gradually exit from policy stimulus while placing more emphasis on financial stability and deleveraging, which was confirmed when new limits on banks’ property loans were announced on December 30. Stimulus is now effectively on hold in China, with neutral settings for both monetary and fiscal policy.

On the coronavirus front, there have been reports of new COVID-19 cases in some Chinese cities, but local lockdowns, tracking, and testing have prevented their spread. The National Health Commission announced that vaccination will be free for all Chinese citizens.

U.S. Introduces More Investment Restrictions Against China

In early December, the U.S. added four more large state-owned enterprises to its investment blacklist of stocks deemed to have links with the Chinese military. President Trump signed the Holding Foreign Companies Accountable Act, which requires publicly traded foreign firms to comply with U.S. audit rules within three years or be delisted. Chinese equities fell after S&P Dow Jones said that it would drop 21 of the blacklisted Chinese firms from its global stock and bond benchmark indices.

Manufacturing PMI at Decade-High Levels

At the beginning of December, investor sentiment received a boost from a strong set of November purchasing managers’ indexes (PMIs). The Caixin manufacturing PMI saw the strongest improvement in operating conditions for a decade. The Caixin Services PMI pointed to an acceleration in activity for a key sector that had been lagging most in the recovery. Other macro data were in line with expectations, with industrial production rising 7%, retail sales growing by 5%, and fixed asset investment up 2.6%. China’s trade surplus hit a new record in November as exports increased by 21.1% year-on-year. China’s CPI turned negative for the first time since October 2009, falling
0.5% year-over-year as pork prices slumped on increased supply.

Fintech Companies to Face Stricter Oversight in 2021

Beijing appears determined to regulate the country’s fast-growing and increasingly influential internet sector more closely, including fintech companies like Ant Group. Many expect the PBoC to force Ant to shed equity investments in some financial companies, reducing its influence over the sector. China’s competition regulator fined three major e-commerce platforms (Tmall,, and Vipshop) for mispricing products, the latest in a barrage of regulatory actions targeting the internet sector.

Other Key Markets

Turkish Shares Gain on Change in Central Bank Policy

Turkish stocks, as measured by MSCI, returned 20.37% in December versus 7.40% for the MSCI Emerging Markets Index. Returns in dollar terms were lifted by a 5% gain in the lira versus the U.S. dollar.

In late December, Turkey’s central bank decided to raise all three of its main lending rates by 200 basis points: the one-week repo auction rate (from 15.00% to 17.00%), the overnight lending rate (from 16.50% to 18.50%), and the late liquidity window facility rate (from 19.50% to 21.50%). Central bank officials indicated that tight monetary policy “will be decisively sustained” until there are indications that there will be a “permanent fall in inflation.” T. Rowe Price sovereign analyst Peter Botoucharov believes that policymakers are sending a clearer signal to the financial markets that the central bank is serious about getting inflation under control. He also believes that monetary tightening will remain in place for about four to six months. However, he acknowledges that inflation is likely to remain elevated in 2021 amid talks about a 20% increase in the minimum wage and in the absence of tighter fiscal measures to match the restrictive monetary stance.

Chilean Equities Advance Amid Changes to Pension Withdrawals

Stocks in Chile, as measured by MSCI, returned 12.45% in December. Returns in U.S. dollar terms were boosted by an 8% gain in the peso versus the greenback.

Early in the month, the legislature approved, and President Sebastián Piñera signed into law, the country’s second pension withdrawal bill this year. Like its predecessor, which was enacted in the latter part of the summer, the law enables pension participants to withdraw some of their pension balances on an emergency basis—up to 10% in this instance—due to the pandemic-driven economic downturn. While the reduction in pension savings and the long-term cost to Chilean fiscal accounts are the downside of premature pension withdrawals, T. Rowe Price emerging markets sovereign analyst Aaron Gifford notes that these emergency pension withdrawals represent an important inflow into consumers’ pockets, enabling them to pay down debt, purchase necessities, and increase their savings.

Stocks Gain in Brazil

Brazilian stocks, as measured by MSCI, returned 13.66%. Returns in U.S. dollar terms were lifted by a 4% gain in the real versus the dollar.

Brazil’s electricity regulator decided in December to reintroduce the tariff flag system on electricity tariffs, which had been suspended earlier this year due to the pandemic. As a result of low water reservoir levels and the need to source more expensive thermal power, this action adds a surcharge on electricity tariffs—to the highest possible level—which, in turn, will feed into inflation in the near term. According to T. Rowe Price sovereign analyst Richard Hall, this is a new price shock on top of an ongoing food price shock. He believes that it will erode real (inflation-adjusted) incomes and hurt economic growth at a time when the labor market is soft and unemployment is relatively high.

At the central bank’s December 8–9 monetary policy meeting, policymakers decided, as expected, to leave the Selic rate at 2.00%, where it has been since early August. According to the post-meeting statement, policymakers noted the “reversal of the downward trend in inflation expectations” and telegraphed that, at some point, they will no longer provide forward guidance for how long they anticipate keeping the Selic rate very low. Central bank officials attempted to reassure investors that an interest rate increase would not be an automatic next step “because the economic situation continues to prescribe an extraordinarily high stimulus in the face of uncertainties.” While policymakers did acknowledge “the stronger inflationary pressure in the short term,” they believe that the current price shocks are temporary.

Major Index Returns

Total returns unless noted
As of 12/31/2020
Figures shown in U.S. dollars

  December Year-to-Date
U.S. Equity Indexes    
S&P 500 3.84% 18.40%
Dow Jones Industrial Average 3.41 9.72
Nasdaq Composite (Principal Return) 5.65 43.64
Russell Midcap 4.68 17.10
Russell 2000 8.65 19.96
Global/International Equity Indexes    
MSCI Europe 4.72 5.93
MSCI Japan 4.15 14.91
MSCI China 2.77 29.67
MSCI Emerging Markets 7.40 18.69
MSCI All-Country World 4.68 16.82
Bond Indexes    
Bloomberg Barclays U.S. Aggregate 0.14 7.51
Bloomberg Barclays Global Aggregate ex-USD 2.17 10.11
Credit Suisse High Yield 1.93 5.48
JP Morgan Emerging Markets Bond Global 1.79 5.88

Past performance cannot guarantee future results.

Note: Returns are for the periods ended December 31, 2020. The returns include dividends and interest income based on data supplied by third‑party provider RIMES and compiled by T. Rowe Price, except for the Nasdaq Composite Index, whose return is principal only.
Sources: Standard & Poor’s, LSE Group, Bloomberg Barclays, MSCI, Credit Suisse, Dow Jones, and JP Morgan (see Additional Disclosures).


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Additional Disclosure

The S&P 500 Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2020. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark(s) of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The LSE Group is not responsible for the formatting or configuration of this material or for any inaccuracy in T. Rowe Price Associates’ presentation thereof.

MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

© 2021 CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved.

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2020, J.P. Morgan Chase & Co. All rights reserved.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Associates, Inc., investment advisor.

© 2021 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

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