Please below the latest ‘Markets in a Minute’ update from Brewin Dolphin – received last night 01/12/2020
Markets in a minute: Equity rally pushes global markets to record highs
01 . 12 . 2020
It’s been an historic week for equity markets as numerous indices hit all-time highs. In the US, the Dow passed the 30,000 level for the first time and the Russell 2000 index of small cap firms also hit a new record. Japan’s Nikkei hit a 29-year high and the MSCI Global Index hit its highest level ever. Here in the UK, the FTSE100 enjoyed its best month since 1989, rising by 12.4%. The rally has been prompted by positive vaccine news and high hopes of a return to normal in 2021, plus Donald Trump finally appeared to accept his defeat.
Last week’s markets performance*
- FTSE100: +0.25%
- S&P500: +2.27%
- Dow: +2.12%
- Nasdaq: +2.95%
- Dax: +0.46%
- Hang Seng: +1.67%
- Shanghai Composite: +0.90%
- Nikkei: +4.37%
*Data for week to close of business on Friday 27 November.
Stocks fall as investors take some profits
Global markets were largely down at the start of the week, with US indices retreating from their highs. The Dow fell by 0.91% while the Nasdaq closed down just 0.06%.
Here in the UK, the FTSE100 fell by 1.59% with most of that fall occurring in the last hour of trading.
This is a classic sign of profit taking; when investors look at their portfolios at the end of the month and see big gains in equities and relatively lacklustre performance from other assets such as bonds and cash, it is typical for many investors to cash in some profits, leading to a downturn in prices. The next question is whether we will see a classic ‘Santa’s rally’, the phenomenon that sees shares rise in most years in the run-up to Christmas.
Black Friday sees online sales surge
Digital sales rose by almost 22% on Friday compared with last year, with Covid-19 leading shoppers to spend around $9bn online instead of going into physical stores. Another interesting aspect is that 40% of those sales were booked over smartphones, highlighting two secular trends that we think are here to stay, even as the pandemic fades over the next couple of years.
Property boom
UK mortgage approvals hit a record high in October, reaching their highest levels since 2007 as buyers rush to complete purchases before the government’s temporary stamp duty holiday ends next Spring. The news comes despite rising unemployment and falling economic activity.
There were 97,500 mortgages for home purchases approved in October, up by a third compared to February, before the pandemic started. Economists expect the mini boom to continue until the stamp-duty break ends in March, as new working habits prompt more people to trade up or move out of towns as they envisage working from home more often, even after the pandemic.
After that point, the consensus is for activity to begin reflecting the economic fundamentals, as rising unemployment and mortgage rates take their toll and the cautious attitude being exhibited by consumers on the high street spreads to the housing market.
Source: Bank of England
Data: 30/11/2015-31/10/2020
Households repay credit and loans
Data from the Bank of England showed signs of a slowdown in consumer spending, with households repaying a net £600m of consumer credit in October. That means consumers are repaying more in loans and credit cards than they are borrowing. In contrast, consumers were borrowing roughly £1bn a month before the pandemic.
This is important because consumer borrowing tends to form the basis for most economic recoveries. This time, however, a vaccine and return to the office may do the trick instead, helping bolster spending in suffering town centres.
Interest rates
There is an expectation that interest rates will stay close to zero for some time, but beyond the next few months, rates in the UK and US could begin to diverge.
For the immediate future the outlook looks like it should improve for the UK as it emerges from lockdown, while the US remains vulnerable to further tightening measures. The US economy has remained resilient so far, even according to high frequency data, but the latest initial jobless claims showed rising claims for the last two weeks, while consumer sentiment exhibited worries over the outlook for the employment, which may keep rates low in the US and help push the case for more monetary and fiscal stimulus.
This week’s ‘Markets in a Minute’ from Brewin Dolphin focuses on this week’s market rally which has been prompted by positive vaccine news and the hopes of a return to normality during 2021.
Please continue to check back for our regular blog posts and updates.
Charlotte Ennis
02/12/2020