As schools return at last and the next generation of financial planners and investment managers can restart their education, markets seem to be in limbo. The S&P 500 in the US finished August setting a new high, but as we have mentioned numerous times, the dominance of a small handful of mega-cap ‘tech’ stocks hides a more subdued picture under the bonnet. The last few days have seen a setback in the tech sector and therefore the Index retreating quite sharply from its record level.
As people and businesses have started to adapt their behaviours to operate in a COVID-compliant manner, other issues have started to have an impact alongside the pandemic.
The US election, US/China trade wars and a UK/EU trade deal were the three issues most likely to have an impact on markets and therefore client portfolios as we entered 2020. They are returning to centre stage, but now against the backdrop of a global recession, albeit one where a lot of data suggests recovery is a little more robust than many feared.
The US Election is already turning nasty – no surprise there! Trump would have been confident of a second term if the economy was on track as seemed likely at the turn of the year. Markets certainly thought so. But Biden is politically moderate by comparison to Bernie Saunders or Elizabeth Warren the two Democrat candidates that Wall Street worried about. So, a lot of noise to come but not perhaps a ticking timebomb for the S&P 500.
Brexit is back in the headlines – imagine how fed up we would be of hearing about the trade talks if the pandemic hadn’t occurred? Again, a lot of noise – deal or no deal, breaking international law. It will go to the wire and no deal could still upset UK-centric companies that rely on exports to Europe.
The FTSE 100, a laggard so far this year relative to other major global indices, may get a boost from sterling weakness, as it did in 2016 when the referendum result came through. Overseas earnings are flattered by a weak sterling and over 80% of FTSE 100 earnings are overseas.
It is worth recalling that the direst warnings for the UK economy of no-deal were less severe than the reality of the pandemic in economic terms. And the world is still turning. We have been reducing UK exposure relative to overseas markets both pre and post COVID and have further cut smaller company exposure in favour of larger companies this year.
The US/China Trade wars are ever-present and clearly not helped by the Trump references to the ‘China virus’. But even here, as both economies were rocked by the global lockdown there has been greater pragmatism behind the scenes as focus has been on recovery.
Stock markets regularly have to climb a ‘wall of worry’. This is no different and the continued Central Bank and Government stimulus will continue to make the wall a little easier to climb.
Please continue to stay safe and alert.