Well here we are again my fellow Welsh cousins, locked up for our own good and hoping this virus will leave us alone. In fairness, a two week ‘firebreak’ doesn’t seem to bad, and we are nearly half way already.
However, as with the media information bombardment in the last lockdown, it is hard to see the wood for the trees right now.
I wanted to focus on two key areas in this weeks ‘lockdown article’. One is the condition of the UK and the other is the US presidential elections this coming Tuesday.
Markets sold off aggressively yesterday. The headlines attributed this to ‘rising virus cases’. I slightly disagree, it is not as simple as that.
Right now the US faces a pivotal election with quite dramatically polarised potential outcomes. The poles suggest that we will see a Biden sweeping win of the Presidency and both the houses of Congress and the Senate.
If this happens, there will be ambitious green spending, infrastructure projects and masses of fiscal stimulus to help the US economy. Before we get too excited by this outcome for portfolios, Biden is very clearly in the ‘tax and regulation’ camp. This would be bad news for Banks, Tech Companies and Oil and Gas.
However, if the poles are not quite right, Biden could fail to win the Senate which would scupper the stimulus deals but also slow down the tax and regulation.
Of course, if the poles are completely wrong, we could see an almost identical ‘stalemate’ situation, but with Trump at the helm and more Chinese sanctions.
This is why markets are so volatile, they just crave two things: A known outcome and they are addicted to fiscal stimulus.
Add to this the massive collateral damage caused by virus lockdowns, and you can see why ‘sell-offs’ will be with us over the next week or so at least.
All is not doom and gloom in the US, however. Building permits hit a 13 year high last week, with home sales up 9.4% for the month which is the best level since May 2006. Weekly joblessness numbers also fell to 787,000 which is the lowest level since the crisis started in March, and those continuing to claim benefits fell in a week from 9.4 million to 8.4 million.
Like him or not, Trumps America is extremely resilient and I wouldn’t write the US off just yet.
In China, they have managed to pull off the full V shaped recovery. The irony of this isn’t lost on many of us, but it is encouraging to see that recovery is constantly a possibility.
What about good old Britain?
Well currently, we probably feel as if we are the most fractured and crackpot country in the world with all of the power struggles between devolved governments and even mayors. However, listen to the US financial news and they are experiencing exactly the same issue across their states.
There is no doubt that things have not been good for the UK. Our FTSE 100 index is down this week by around -23% on the year. This is comparable to our European cousins Stoxx Europe index down by around -14% and the S&P 500 US index being up by +7% on the year. Even the MSCI World average stands at +3% for the year, so the UK is currently looking a bit sick.
The reason we didn’t see the full V shaped recovery here that other countries experienced is because we have uncertainty around our future trading deal with the EU. Every week that ‘negotiations’ continue, casts more gloom on UK company’s futures.
Honestly, I expect a last minute deal which concedes much of the EU stipulations – dressed up as a victory for UK independence. I may be wrong.
UK stocks are really unloved right now. This is feeding through into our more cautious portfolios which naturally hold far more UK domestic based stocks to avoid offshore political and currency risks. The winners this year (strangely) have been the more Adventurous portfolios and the Ethical portfolios that have held more US and offshore exposure and less Oil.
None of our clients are currently facing large losses on the year and indeed most are looking at pleasing gains as things stand. However, we are looking very carefully at the UK story. Could there be an argument for the greatest ‘snap back’ we have seen in a generation once the Brexit business is over?
The counter risk to this, is that no deal is struck and our supplies are choked whilst inflation rises. However, even in this scenario, there will ultimately be a point where the 5th largest economy in the world comes out fighting.
Just as one small point of evidence. Tech ‘Start-Up’ companies are extremely valuable to any economy. At the close of 2019, we had 77 of these start-ups worth over $1 billion globally. This is over double Germany’s tech start-ups, and they are the second biggest in Europe.
Just dare to imagine an Easter in 2021, where a viable vaccine is in place for our more vulnerable citizens, the Brexit debacle is over and we are able to unleash our talent and abilities globally. Yes, we will need to dig in and pay down national debt, but suddenly the ugly duckling might just become a swan.
As always, we are here for you 100%. Your portfolios are in good shape and we are on the ball. Nothing is too much trouble. Don’t suffer in silence. The media love the gloomy stuff, I can see much better opportunities ahead.
Until next week, look after yourselves, stay heathy and God bless.
Darren
