Market Update and Guidance – 29/10/2020
As we deal with the health and economic impact of the second wave of the virus in the UK and Europe, markets have hit another patch of turbulence. We have seen heightened volatility over the last few days.
Why do we have this level of volatility?
The obvious answer is the global pandemic and the impact on our economies around the world. In addition to this we have the US election and Brexit too to name just a few issues.
The US election has gridlocked the political system in the States and as a result badly needed additional fiscal support has not been forthcoming. If we get a ‘Blue Wave’ for the Democrats and they are fully in control this gridlock could be resolved fairly quickly and fiscal support could be put in place.
Brexit negotiations rumble on and we could do with a positive outcome. J. P. Morgan’s base case is that we will get a last-minute fudged deal but there is still a risk of a ‘No Deal’ Brexit.
Volatility could continue with further legs down even as economies and markets recover. Given time markets and funds will recover.
What is the outlook?
The vaccine (or vaccines) are a key issue. The consensus view appears to be that we will have a vaccine late this year or early 2021. This will be a game changer. Even if we can only protect our Health Workers and the vulnerable initially this should give consumers confidence to return to normal behaviour.
By the end of 2020 we should know who the next US President is, understand our Brexit position and hopefully have vaccines that are starting to be rolled out.
Are there any bright spots?
China and North Asia generally are doing well. In particular the data coming out of China is really good and they appear to have recovered economically and are growing. This could have a positive impact not just in the region but globally.
Some sectors have done well too, for example Technology. We are also seeing more intertest in ‘Green Energy’ as the world starts to grapple with climate change.
Vaccine development is progressing at a pace too.
What might help?
More support from Central Banks such as the Bank of England, the ECB, and the Federal Reserve. Generally, they look supportive and able to accommodate more help. The IMF recently indicated that more support should be forthcoming from Central Banks.
Policy support from governments globally will help too. We need to spend on infrastructure projects and focus on keeping people in work and getting back to work with training and apprenticeships etc.
A weaker dollar would be useful helping Emerging Markets trade and having a positive impact on global trade too.
As an investor what should I do now?
Maintain the status quo and stay invested in real growth assets. If you are funding pensions and investments keep on funding. Generally, asset values are low now and should show good returns over the long term.
If you have spare capital now is a good time to invest too if you have the risk appetite. Buying assets at the right price is the key determinant of long-term investment returns.
Don’t try and time the market, you need time in the market.
Summary
The quote ‘The darkest hour is just before the dawn’ seems appropriate. Said to emphasise that things often seem at their worst just before they get better. The English theologian and historian Thomas Fuller appears to be the first person to commit the notion that ‘the darkest hour is just before the dawn’ to print.
We don’t know how long this ‘hour’ will be, but progress is being made.
Just be patient, we should be on the way to a brighter future and hopefully with the aid of vaccines our behaviours will become more normal and economies and markets will recover as our activities increase and life returns to normal, a new normal?
Steve Speed
29/10/2020