Do you remember when you were a child and you asked your parents for something and were told ‘no‘ or ‘you’ll have to wait‘? Well that ethos has certainly done a runner this week hasn’t it? Just get out and grab what you want and never mind about meaningful dialogue, or the laws of the land.
If I had tried to deal with things in a wanton and clumsy way back in the day, I wouldn’t have been walking home with a bag of sweets that’s for sure. Ask nicely, bide your time and positive things should happen; rules and guidelines are there for a reason, to protect everyone (ignoring the Cummings and goings of one or two who should know better of course…!)
Anyway, what’s happening in the investment markets?
Well, after a strong run within shares last week, there has been some profit-taking this week, but in spite of the inevitable recession which many countries are entering, investment sectors are reacting positively.
We saw last week in the United States that there had been a small reduction in the unemployment figures which was very good news for them (although 40% of the new jobs have been on a part-time basis). In addition, the technical share exchange in the US (Nasdaq) has reached a new high, with the main US share index being only around 5% behind it’s high-point. This sort of news ripples through global sharemarkets and so has a direct relevance to us here as well.
What is noteworthy is the fact that, unlike the ‘dot-com’ share bubble in the technology sector back at the turn of the century, where companies with no real resources were given silly valuations, as investors bought their shares in the hope of new-found wealth, the leading technology companies of today have vast cash resources and global market share (Apple, Amazon and Microsoft to name just three) and therefore are well poised to benefit from growing out of a recession, as competitors may struggle and new entrants simply don’t have the resources to compete.
So yes, large companies get larger but only if they are in the right sectors, so picking the right shares and sectors is absolutely key for investment fund managers right now. If any commercial lessons have been learned though lockdown, they will doubtless include the fact that remote-working can have merit and internet-shopping is now a more familiar exercise for many, so footfall may reduce in favour of people remotely using technology to do many things. Although, I’m sure everyone is ready to go and spend a day on the High Street, even if it’s just to see the pigeons again and have a coffee.
In the UK, sharemarket recovery has been good if a little more muted, but as I have suggested before, we are now entering a crucial point in the recovery process, where we see businesses (globally) determining their shape and size as they ready to re-open. This will doubtless mean many redundancies and I am sure that many of us may have been affected by this within our own families.
Whilst ‘investors’ like to see companies restructuring to make them better resourced financially (as mentioned in my last blog), there is a human toll and this will also have a knock-on effect in terms of consumer-spending, house prices and the like. Let’s hope that it is a short-lived journey for many and that the employment curve quickly recovers, but this is the next ‘test’ in the investment recovery process.
Many behavioural expectations have been factored in to share prices already, but what we have yet to witness are the outcomes of the recent changes imposed on us all. So it is good to see investment sectors recovering so well, but ‘proceed with caution’ still has to be the underlying message in my view. Nobody wants to miss out on investment growth opportunities, especially as cash deposit alternatives are awful right now, but as I have said right back at the start, there will be bumps in the road. If you don’t mind these, then it may be an opportune time to consider investing with some risk again.
All in all though, riots, Brexit difficulties, recessions and lockdown fever notwithstanding, we seem to be heading back in the right direction (crosses fingers).