It’s been a while since my last post (who was it that used to say that?), but like so many of you I have been watching and trying to make sense of all of the conflicting opinions out there!
Firstly, to address the immediate issue, we do appear to be into the second wave of the Covid virus, both here and within mainland Europe and the US and it would seem that some form of national lockdown may be inevitable, given the moves by France and Germany in recent days to do so.
Whatever your take on all of this, more testing = more cases, different elements of society catching the virus, hospitals full of Covid or other patients, is it flu or a combination that is making for the serious admissions; there is absolutely no doubt that the matter is real and upon us and we have to address it, hence the nervousness which has also crept into investment markets during this week, with the FTSE falling by around 5%, 3% of which occurred yesterday.
So how does this shape the investment situation in the short term? Well, as I have mentioned previously, western markets tend to be influenced by what happens within the US and we know that an election is to take place there next Tuesday; we also know that the US are continuing to try and address spiralling rates of Covid in many states and that lockdowns are affecting their economy in much the same way as ours and Europe’s right now. But all of this was anticipated and to a good degree factored into investment markets already, which is why we have not seen the sort of correction in values which we saw back in late March. Furthermore, the US is awaiting a much-needed and significant fiscal stimulus programme, which the President has suspended until after the election and, it would be reasonable to expect that whatever the outcome of the election, this package will be introduced and with it some clarity for people and businesses. If this lifts investment markets, as I expect that it will, then hopefully the mood will carry across the Atlantic to our own investment markets, although UK markets are still mired in the issues of Brexit and Covid governance.
Meanwhile, back in the UK we continue to wrestle not only with Covid, but also Brexit and whilst we cannot control one of these, it is hoped that there may be some agreement on Brexit in order to stave off the further economic impact of having to adjust to a no-deal situation and set of rules. As I mention, positive news from the US (and also from China, whose economy is rebounding at a pace) helps the market mood, but we still have to address our domestic issues in order to sustain any green-shoots of recovery.
I have spoken previously of the bumps along the way to recovery and this is certainly THE large one and has come at a time which was pretty much as anticipated, although to read the papers and listen to the news you would not think so.
Hopefully it may be the last of the major economic obstacles which we have to overcome for a while, but much depends upon Brexit, a successful vaccine programme and of course, the length and scale of any further lockdowns (if this one doesn’t work, I suspect there will be little public and even political appetite for any further ones). We are close to a way forward, but always needed to navigate this hurdle and the coming days and weeks will hopefully enable us to do this without too much further economic impact; this is what the markets are watching closely right now and any reactions which we do see, will be driven by nervousness more than economic fundamentals.
In conclusion, when funds are moved away from shares, such as we have witnessed again this week and in truth since March (sharemarkets are still down by in excess of 20% in the UK this year, which is a lot worse than in many other countries) they can often enhance yields in other investment areas, such as bond markets and gold and this does seem to be the case right now, as cash holds no upside with interest rates being as low as they are. However, what we do not want is panic and a movement out funds our of all sectors and into cash as a safe haven, such as we experienced back in March for a few weeks.
Whilst there is an acknowledgement of the fact that investment sectors always recover over time, it is the extent to which they fall and the speed at which they rebound that stresses people most (not least me!) and I am hoping that this time around, we will have a more controlled market, rather than the one which we witnessed back in March, but much will be shaped by what happens in the next week or so.