As it happened: ASX adds 1.5% in best start to a year in two decades

The market’s strong start to 2021 defied gloomy futures trading, as coronavirus clusters in NSW and Victoria continue to boost fears of wider economic lockdowns.

But a promising Monday-morning update from NSW public health experts lifted the mood, adding momentum to an undercurrent of optimism that the eventual rollout of a vaccine will prove both a health and economic salve.

“I think we forget that markets are forward-looking,” Bell Direct analyst Jessica Amir said on Monday.

“People are focussed on what the world will look like after the pandemic, past the doom and gloom, lockdowns, restrictions, and outbreaks, past the end of JobKeeper.

“The vaccine rollout pretty much means markets are positive going into the new year.”

The market’s year-opening advance was fuelled by another record-setting session for Fortescue Metals and a glittering run by the local gold miners.

Twiggy Forest’s $75 billion miner rose 5.9 per cent to finish at a new peak of $24.80, brushing away fears around a renewed push from China to achieve iron ore self-sufficiency. Gold prices were back above $US1900 an ounce and at near two-month highs, lifting Newcrest, Northern Star, Saracen, and Evolution.

Commonwealth Bank led gains for the major lenders, adding 2 per cent to close at $83.75. NAB rose 1.5 per cent to $22.93, Westpac lifted 1.3 per cent to $19.63, and ANZ climbed 1.5 per cent to $23.04.

The Aussie dollar remained elevated above 77 US cents and near 30-month highs.

JP Morgan Asset Management strategist Kerry Craig agreed that COVID cases and vaccine distribution will remain the key focus for investors for now, with the political forces that influenced markets late in 2020 having almost faded almost with the passing of the US election and Brexit.

But he also expects the next couple of months to be bumpy.

“Without the wide distribution of vaccines, the paths of COVID and the economy are locked together, given the impact on social mobility and economic curtailment. This link will be broken as immunity levels rise into the middle of the year, but until then the economic path will be bumpy over the first quarter,” Mr Craig said.

“Investors should look through the bumpier start to the new economic cycle and focus on the improved earnings outlook and still supportive fiscal and monetary policy stance. Even if monetary and fiscal policy support may not increase as much in 2021 as it did in 2020, the fact that they are still at a very loose setting helps the outlook for risk assets like equities and credit.”

The local market accelerated its rise as US futures ticked higher ahead of this week’s crucial Georgia senate race in the US.

Patrik Schowitz, JP Morgan Asset Management’s global multi-asset strategist said the election could prove a market event if the Democrats win both of the Georgia senate seats, enabling president-elect Joe Biden to push more of his tax and spending policy.

“It’s quite possible we could see a negative initial reaction from…