The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’

It was a jarring image. As deaths from the pandemic rose in 2020, financial markets high on government stimulus partied through a devastating global downturn. Most people expect the revelry to continue as economies recover. But now there are signs the recovery could turn into a boom — and an overheating economy could end the market party. This year could unfold as a mirror image of 2020, with markets going flat amid soaring economic growth.    

To understand why, follow the money. After a brief crash last March, markets started rallying the day after the US Federal Reserve announced its first pandemic relief measures — and kept on rallying. Nearly 20 per cent of all dollars in circulation were printed in 2020 alone. Major central banks followed the Fed, and governments topped that up with stimulus spending. US disposable incomes rose at the fastest rate in decades, but much of that went unspent. Americans saved at the highest rate since the second world war, putting away an additional $1.7tn, or more than 16 per cent of their 2020 income.