Please find below our Investment Market Update as at 6th November 2020.
Blue Sky Investment Market Update
I knew I’d have plenty to write about this week!
In some ways, there is lots to comment on but bizarrely, not a great deal has changed! Yes, we are likely to have a new President of the United States, but it is such a close-run thing that the markets have taken solace that there is not a runaway victor.
Leading up to the election
Halloween week certainly spooked the investment world with large reversals in equity prices. We knew it was coming! We just didn’t know how big the swings would be and for how long.
With Biden ahead in the polls by quite a margin, equity investors became worried that a Biden victory would mean a change in the current dynamics, especially as Biden has been labelled anti-business. Spin maybe, but there is no doubt that Biden is interested in raising taxes and addressing imbalances around competitiveness, particularly in the technology sector.
It has been an interesting journey over the last few weeks. About a month ago, the markets were fairly sanguine, and indications of a strong Biden victory were met with relative calm across the markets. Uncertainty being more difficult to deal with. Better to know what is likely to happen than be unsure!
However, as the election got closer, the realisation of what might happen to certain sectors if Biden wins comfortably caused an adverse reaction across the equity space. Yet, we didn’t see a flight to safe haven assets like bonds with any real conviction, suggesting that this may be short lived.
The election and the result
The risk off approach reversed as it became clear that the election result would be a close-run thing. The wall of blue which was previously anticipated was punctuated by red splurges of republican votes. What the market decided it liked, was more of the status quo, especially when it came to the restricted powers of the Senate. Whether this is a good thing socially or morally is another matter!
It’s still not quite decided, but sadly the dignity of American politics has certainly been left on the hard shoulder. It’s just awful, yet so predictable.
We had already made some tweaks to our portfolios a few weeks back in anticipation of the unfolding uncertainty and we were pleased with our positioning ahead of the election. We expected volatility but like LGT Vestra said in our webinar on the 22nd Oct, we didn’t want to get involved in any short-term trading moves.
This week equity markets have bounced back strongly. The Nasdaq, the technology index, bouncing back with its best rally since April. Avoiding a landslide Democratic victory pointed to the prospects of a more investor friendly government policy. The expectation being that there will be no major changes to taxes or regulations.
Here in the UK
Well, we’ve been a sideshow in many ways, but a new month-long lockdown reinforces the deepening health crisis which is unfolding.
The extension of the Furlough scheme to March 2021 has been welcomed and offers security to many businesses but, of course, it also creates more of a hole in the public purse. Thank goodness the cost of servicing the debt is low in the current environment.
The Governor of the Bank of England has vowed to do “everything we can” to support the economy, promising a further £150bn of support in the form of Quantitative Easing. This will help the government down the line should it wish to borrow more money at an attractive rate.
There we have it. Despite the frenzied reporting, not much has changed! There may be a new President in the offering in the US but because it’s such a close-run thing, there won’t be a big swing in power which equity markets liked, especially the tech sector.
The UK has significant challenges, not least when it comes to Brexit. This will begin to dominate the headlines over the next few weeks and expect further volatility closer to home.
At least we have brighter mornings!
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.