Please find below our Investment Market Update as at 27th November 2020.
Blue Sky Investment Market Update
The Dow Jones makes headlines
The news wires went into overdrive this week with the Dow Jones Index in the US reaching a record high and pushing through the 30,000 mark.
On the back of this news, we’ve had people wanting to invest. We are happy to accommodate as I’m confident markets will push on from here. It’s funny however, that when people hear such good news, they want to invest but when it’s a screaming buy because prices are dirt cheap, they don’t want to invest!
Clearly, it’s all about confidence. Yet most of the stellar returns have already been made by those that took a chance. Appreciating that you would need a strong disposition at the time… and some cash!
If we step back from the headlines for a moment, the Dow Jones has just surpassed the closing highs before lockdown – and I mean only just! On the 12th Feb 2020 the Dow Jones closed at 29,551.42 and on Wednesday of this week it closed at 29,907.69. A gain of 1.2%, so what’s the big deal? The big deal of, course, is that it has breached an all-time high and has recovered from 18,591.93 on the 23rd March 2020, despite the deepest recession in history.
Of course, other indices and sectors post a different story. The FTSE 100 was priced at 7,642 on 15th Jan 2020, finished at 4,993.89 on the 23rd March 2020 and closed on Wednesday of this week at 6,391.09 after a recent surge. On price alone, still 15.56% lower than in January!
The Nasdaq Composite index offers a different story. The technology index in the US on the 12th Feb closed at 9,725, then fell to 6,860.67 at the close on the 23rd March 2020 and now sits at 12,056.05!
Many cross threads
How come the Dow Jones has just posted a record high when meanwhile:
- Thousands wait in line for free food in Houston
- Food banks across the US warn of growing need
- Over 20 million are on unemployment aid in the US?
This was a comment from Heather Long, who is the Washington Post economic correspondent. Certainly, when it comes to financial well-being there seems to be a cross thread here with the markets. A situation which, at first, may be difficult to understand.
Let me explain… I’ll try to keep this as simply as possible.
- Many of those finding themselves impoverished are lower skilled workers, many on zero hours contracts who worked in the hospitality sector. The relevance of this from an economic viewpoint is that they don’t typically generate lots of wealth for the country. Very sad, nonetheless.
- It’s important to understand that stock markets are a forward-looking indicator and now we have the prospects for the global economy improving, especially with announcements around vaccines.
- The economy operates on a different wavelength and it takes time for the economic picture to become clearer. A recession is technically two consecutive quarters of negative growth. In July this year we knew we were going to be coming out of recession because in the third quarter, parts of the economy jolted into action. However, the data from the Office of National Statistics were not known until recently. My point being that it takes a long time to receive official confirmation that the economy is improving and for it to become headlines, by which time the stock market has already reacted.
- When we experience a sudden shock, the fall-out is disruptive and the impact on the economy creates waves of uncertainties and sadly, the result is poverty for many. This of course impacts on confidence and consumer spending.
- It’s really important to differentiate between sectors. Some areas of the global economy have been so devastated, and it will take years for them to recover. Many well-known companies have already fallen victim to the Pandemic. Other sectors like technology have enjoyed a boom time as we have become so reliant on technology to communicate with each other. The US mainstream stock market indices typically embrace more technology stocks than, for example, the FTSE 100 and in part, this is the reason for the differential in performance.
- We should not underestimate the stimuli from central banks and governments. Their intervention with a “we’ll do whatever it takes attitude” has been so important at many levels. Without this mantra and resultant actions, stock markets and indeed economies would be in a far worse state. It is just that stock markets react more quickly to support.
The latest news
- Hungary and Poland appear to be holding the EU to ransom concerning their stimulus packages. Their veto is delaying 1.8 trillion of EU spending, including the 7 year budget and a 750 billion euro virus relief fund. Brussels is not happy and if they don’t comply, the countries in question could see their funding from the EU cut.
- Brexit trade talks will resume this weekend. There are mixed reports on the progress (or lack of it). Personally, I hope a deal is reached because the UK can do without any further uncertainty.
- The Chancellor warned this week that because of further lockdowns here in the UK, the anticipated recovery in the economy won’t be as good as previously forecasted. He warns that it will be not until the fourth quarter of 2022, in two years’ time, that the UK economy will reach pre-pandemic levels.
- With most of the country in Tier 2 lockdown measures, there is a sense of frustration amongst many, especially the hospitality sector. There will be an ‘accommodative approach’ over Christmas and then no doubt back into lockdown. Let’s hope that this will then be the last period of isolation we have to endure.
A brighter note
Another cross thread with the economic crisis… many online suppliers are experiencing record orders. Great for the economy as people are spending but there is a negative bi-product. As reported by Bloomberg, Amazon has warned that some products which normally take a day or two are now taking a week or longer. Fedex and UPS are running into a shortage of delivery vans!
Similar stories here in the UK. Hamper companies have said they have never been so busy with them experiencing a shortage of products, with one being a company in Poole I spoke to having run out of hamper baskets already!Delivery times are stretched to three weeks with many warning that unless orders are given quickly, you may not get what you intended, and the goods might not reach the destination until after Christmas.
I suppose this is not great news for the high street unless the retailers have been able to reposition their businesses online, but record online sales underlines how effective the furlough scheme has been and how important the support given to the economy from the Bank of England and the government has been for confidence. Add into the mix the probability of a vaccine being rolled out soon and many having more money in their pocket because they haven’t been spending, no wonder we are splashing out more!
We should all spend a little more than usual. We deserve it and it will be helping the economy!
Important, of course, to help others who are not so fortunate if you can.
Enjoy your weekend online!
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.