Right, it felt like something actually happened in markets this week. Nothing huge – this wasn’t Lehman Brothers or 1987’s Black Monday – but definitely some noteworthy tremors. Frustratingly, only hindsight will tell us if these were momentary wobbles, or augurs for something bigger.
Our industry is frequently guilty of treating markets like people. Sailors do the same thing, or at least stereotyped sailors off the telly do: “The sea? Aye, she’s angry today.” they’ll mutter into their pipes, as if this massive, complex, unpredictable entity had simply woken up in a bad mood. Obviously, it’s not that, it’s an unknowable sequence of events and interactions culminating in some big waves. But it’s easier, and more fun, to give it its own personality.
Markets have that in common with seas: they too are the culmination of an unknowable sequence of events. And, just like seas, we try to pin a single motive to their actions when often there isn’t one. Sometimes, like 11th September 2001, there is an obvious cause. But more often it’s just millions of individual decisions adding up to an odd-looking move. Honest as it may be, we can’t write that in a report – it’s boring for one – so we have a go at suggesting why it went up or down.
So here goes: Looking at this week’s moves, my best guess is that more investors are worrying that the economic recovery won’t be as powerful as previously hoped. Maybe because the virus is again proving to be a trickier-than-expected pony, or perhaps because various stimulus programs are being withdrawn, meaning that high-street spending will lose some of its oomph.
Thursday was the day when the wobbles happened. It was European stock markets that fell the most, while US shares proved more resilient. Again, it’s hard to say if this is because investors collectively think Europe’s economy will be harder hit, or if it’s due to the relative fortunes of the biggest companies listed on those markets. As I mentioned last week, Europe has higher exposure to banks, energy and natural resource companies, which means its market will benefit more from a fast-growing economy. In contrast, the US market is dominated by tech companies which, as we saw in the early lockdown, cope fairly well with an economic slowdown (and in some cases even benefit from it).
Adding to these trends was the news that oil prices climbed to their highest level for almost three years. Again, not good for economic growth, as that’s more of our money sent off to overseas oil producers, and less spent on tea and buns. So that didn’t help most share prices. Thankfully, as I write this on Friday morning, shares in Europe are on the rise again, and oil’s price has stayed put. So maybe it’s all been a storm in a teacup after all.
That’s my second tea reference in just one paragraph. From this, I can infer, with one hundred per cent conviction, that it’s time to hit send and break for a brew.
Have a great weekend,
Simon Evan-Cook
(On Behalf of Raymond James Barbican)
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.