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Weekly Note

The Week In Markets – 7 August – 13 August

With a new football season upon us, some brave managers will adopt the approach of attack being the best form of defence. It seems President Biden is taking a similar approach in his response to COVID-19, with spending and stimulus measures being viewed as the best form of defence against the havoc created by the virus.

The Senate Democrats released a vast $3.5 trillion budget resolution on Monday, which was effectively approved on Wednesday, meaning the budget could be passed over the next few weeks or months, with little the Republican opposition can do to prevent it.

The timing of the budget is interesting, given the US economy has recently returned to pre-pandemic levels following the release of Q2 GDP last week. With the economy recovering, inflation running at elevated levels and jobs being added back at an impressive pace, some will question whether such stimulus is required, or whether it should be saved for the next downturn. Will this lead to more persistent inflation? The market is clearly dismissing this scenario, with bond yields still historically low and little expectation of rate rises in the near term, even with inflation above target in US, UK and Europe. In Germany we have just seen inflation reported at 3.8% year-on-year, a 27 year high. Yet despite this, investors are still willing to lend to the German government at deeply negative rates, with the yield on the 10 year bund at -0.46%.

With rising inflation, low interest rates and low bond yields, it is strange that the gold price continues to lag, with the precious metal falling at the start of the week to circa $1745. Remember the precious metal breached $2,000 an ounce for the first time in August 2020. Gold in theory should perform well in this backdrop; falling real yields has historically been ideal for it, although we are not witnessing this at the moment. It’s rare that everything in a portfolio works at once; indeed the objective of a well-diversified portfolio is to ensure that assets perform in different ways to one another. Although gold has been lagging over recent weeks, more risky parts of the portfolio continue to perform well, with UK mid-cap equities advancing over the last week or so. UK M&A activity has been picking up, with international companies continuing to pick off UK assets. Meggitt was subject to a rival bid on Wednesday, with two US firms now battling it out for the company. While these events are great for the short-term share price, one may question the overall effects to the UK economy on a more medium-long term time horizon. 

Like every football season the months ahead will be filled with success, surprise and disappointment with various management strategies constantly analysed by fans and pundits alike. In terms of investing, like all good managers we have an eye on the defence as well as the attack and are willing to tweak the strategy along the way to score as many goals as possible while trying our hardest not to concede.

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 31 July – 6 August

When Raymond Jackson the inimitable cartoonist better known as JAK, who drew cartoons for the Evening Standard for 45 years, was away on holiday some lesser-known cartoonist would draw a cartoon for the newspaper and a line underneath would simply explain “JAK is on holiday.” So too, we are writing this piece informing you first of all “Simon Evan-Cook is on holiday.” He’s away next week too!

The summer months in investment markets are often viewed as quiet months, characterised by low trading volumes, as key decision-makers often take annual leave (there’s a theme developing here) and little portfolio activity takes place. This week has felt fairly uneventful in markets, despite China’s best efforts with continued regulatory pressure.

US ISM manufacturing data, released on Monday, highlighted that manufacturing activity may slow from its frantic pace earlier in the year. The slightly disappointing data had an immediate impact on the oil markets, where prices fell around 3%, driven by concerns that the pace of growth could be slowing. Despite this, US equity markets were not impacted and in fact by Tuesday had recovered to close at an all-time high.

A market that is a long way from its all-time high is China, where a series of increased regularity interventions has spooked investors. This week Tencent suffered, falling around 6% on Tuesday, as a state article described online gaming as “spiritual opium”. Given the stock’s exposure to online gaming, it was no surprise to see investors sell in droves on this news.

On domestic shores all eyes were on the Bank of England Monetary Policy Committee meeting on Thursday. Despite expecting inflation to reach 4% this year due to the strength of the economic recovery in the UK, interest rates were kept on hold, although they may need to be raised in 2022 to curb inflation. The Bank of England stated it expects UK GDP growth to reach 8% in 2021.

As is customary for the first Friday of the month, US non-farm payroll data will be published later today. It will be interesting to see the pace at which jobs have been added to the US economy over the last month. Hiring has been occurring at a healthy pace, and anecdotally there are stories of continued labour and skills shortages, leading to higher wages being offered to entice workers. Perhaps US employers would find it easier to recruit if they simply offered staff more holiday and that might mean less inflationary pressure.

If you are managing to get in a summer holiday, perhaps taking advantage of the further lifting of travel restrictions, stay safe and enjoy while we keep an eye on your portfolio.

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Summer Surprises

For most investors focused on the U.K., Europe and/or the United States, July was far from an unattractive month in all but a minority of equity sectors. This pleasingly allowed a further building of year-to-date returns. Meanwhile bond market yields generally tightened further. Although fixed income markets remain on average dull performers in 2021, performance has improved in recent months.

Investing Is Not a Trivial Pursuit®

Americans, bored in their COVID-induced ‘bubbles,’ turned to board games for fun last year, boosting sales 300%. They rolled the dice, drew the cards, and buffed the skills of cooperation, problem solving, emotional intelligence, and reflective logic — the same competencies critical to successful investment strategies. So, we couldn’t help looking back nostalgically to our favourite games — and probably yours — as we look forward to crafting a sustainable investment game plan.

Stay Optimistic

The fifth month of 2021 will not go down as an important month for global investors. Most equity and bond market investors made some positive – but relatively modest – gains during May. And whilst COVID-19 vaccination progress across many countries has been notable over recent weeks, the general economic outlook across the U.K., United States and Europe has recently improved. Certainly underlying confidence for the rest of this year and into 2022 has improved over recent weeks.

Now It’s May, Do You Go Away?

April was another interesting month, with gains across almost all global stock markets led by the United States, but closely followed by the U.K. and Europe. Whilst the former two were significantly aided by continued COVID-19 vaccine progress and associated national reopening, Europe has started to make some progress too.

A different summer pause

Financial markets are always a three-dimensional jigsaw, with new pieces being added and deleted at whim every business day. But the signals from the last month have been especially difficult to discern. In contrast to the bounce back second quarter, July was a negative month for pan-European markets with the U.K. continuing to lag.

THE ROAD TO RECOVERY

We maintain our belief in the ‘American Dream’ as described by James Truslow Adams, that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement,” regardless of social class or circumstances of birth. We not only acknowledge but embrace that we have work to do as a society, and hope that this year will serve as an inflection point as we advance toward a stronger and more united world.

The end of the beginning

Over three hundred and fifty years ago, back in 1665, Isaac Newton socially distanced himself from the horrors of the then rampant bubonic plague and – away from his burgeoning academic career at Trinity College in Cambridge – enjoyed a ‘year of wonders’ at his childhood home. During this period he formulated a theory of universal gravitation, explored optics and discovered differential and integral calculus.

A Journey through the Unknown

The COVID-19 outbreak has led to unprecedented volatility and tremendous declines in wealth, but we have faith that once the pandemic is defeated, the wild swings in the financial markets will abate and prosperity will return. But what cannot be so easily recovered is the loss of a job, the loss of a business, or, worst of all, the loss of a loved one. While it is our duty to provide timely market insights, please know that now, more than ever, the health and safety of you and your families is at the forefront of our minds.

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