We will end this year in a more precarious position than we could've imagined a year ago, but in a far stronger place than many of us would've expected several months back.
After been down 33.9 per cent at one point, world shares have rallied more than 60 per cent and are more than 10 per cent higher than where they started 2020. The New Zealand sharemarket has made similar gains, up more than 12 per cent year to date and sitting close to all-time highs.
Headlines about Covid-19 are still getting uglier by the week, especially in Europe and the US. However, looking out a little further, the global economy is expected to gain momentum over the next two years.
The OECD projects global GDP will return to pre-pandemic levels by late 2021, while the International Monetary Fund sees 2021 output only marginally below that of 2019.
Vaccine progress, more effective tracing and isolation, as well as behavioural adjustments from people and businesses, are all expected to help suppress the virus. This should allow restrictions to be gradually lifted and - along with ongoing support from policymakers - activity should rebound.
US corporate earnings declined 13.7 per cent in 2020 and are expected to rebound 21.9 per cent next year. This would see earnings for the calendar year 2021 about five per cent higher than that of 2019.
As the new year approaches, New Zealand is in solid economic shape. Fonterra's dairy payout forecast has been increased twice in the past few months, the housing market is extremely buoyant, business confidence has returned to pre-Covid levels and the unemployment rate hasn't risen nearly as much as expected.
Tourism is one industry that will remain challenged, especially ahead of the important summer period where intrepid local travellers won't be enough to offset the usual influx of international visitors many parts of the country are used to seeing.
The NZ dollar is also likely to remain strong, which could be a headwind for some exporters. This is merely the downside of our strong economic position, and buoyant sentiment amidst global markets.
The low interest rate environment is unlikely to change in the foreseeable future, particularly with regard to short-term rates that are driven by central banks.
In contrast, we might see longer-term interest rates rise modestly as the economic outlook improves. This is unlikely to derail the recovery, although it might take the shine off some higher yielding investments that have performed so well in 2020.
Despite our glass half-full view of the year ahead, investors shouldn't get complacent. Markets have performed much more strongly than many had predicted in recent months, and further volatility is inevitable.
Should that occur, it could create some attractive opportunities for long-term investors.
Next year is shaping up as one of recovery, rebound and normalisation. We should see gradual progress towards a reopening of many economies over the next six months, which should allow some of the more economically sensitive businesses, and those that have been hurt most by the pandemic, to recover.
This certainly doesn't mean we should abandon the companies and sectors that have performed so well for us in 2020.
However, it does provide an opportunity for investors to take a more positive view on some of those that have had a challenging year, and which might be beneficiaries of a more 'business as usual' 2021.
Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice