In 2020, the equity market correction surprised many investors and the subsequent equity market recovery surprised even more. Equity markets are trading at or above pre-pandemic levels and we expect this momentum to extend to 2021. However, we expect the leadership to change; for example, U.S. to the rest of the world, large caps to small caps, growth to value, and technology to other cyclicals such as energy, materials, and industrials.
This leadership change will be dependent on global growth, which the International Monetary Fund is expecting to be +5.2% in 2021, compared to -4.4% in 2020 and +2.8% in 2019. In North America, Canada is expected to grow +5.2% and U.S. is expected to grow +3.1%.
Global growth will be driven by successful vaccination programs, which will allow the economy to reopen as workers return to work and consumers return to consuming. As supply and demand increases, economic data should improve, and earnings should accelerate, which is a primary driver for equity returns. Additionally, the global economy will continue to benefit from fiscal and monetary stimulus. Japan passed the largest stimulus package totaling 21% of its gross domestic product (GDP), Canada passed the second largest fiscal stimulus package totaling 16% of its GDP, and the U.S. passed the fourth largest fiscal stimulus package totaling 13% of its GDP.
Central banks around the world have been doing their part by lowering interest rates and many economies are operating in a zero, or negative, interest rate policy environment. Interest rates are expected to remain lower for longer or until we see a significant improvement in economic data.