Discretionary Investment Management | Ravenscroft Group | Richard Allen
02 Nov 20

Weekly update - Buckle up!

Richard Allen from our discretionary investment team in the UK provides this week’s update.

The carefree days of the summer and optimism for a return to “normality” now seems like a distant memory. Sadly, markets are once again dominated by the drum beat of Covid-19. As the nights have drawn in and the temperatures have fallen away, there has been a rapid increase in Covid-19 virus cases centred on the Northern Hemisphere. Like a row of falling dominoes, countries across Europe have steadily fallen back into “lockdowns” with the UK set to join them on Thursday. To add to this potent mix, “Election Day” in the US is finally here this week and further swings in markets may well be on the cards.

At Ravenscroft, we have written extensively about the US presidential elections and whilst we are not going to be foolhardy and try to call a Biden victory or a turnaround from Trump, it is worth touching upon history. This seems to suggest that although certain sectors may behave differently under a Republican or Democratic administration, there is little difference between the two main US parties in terms of long-term US stock market performance. However, the risk in this election is that the gap between the two contenders may be far closer than the polls suggest. The main concern is that we may not immediately see a clear election result and, if the results are challenged, this could trigger further market volatility. Away from politics, the other vote taking place in the US this week is at the Federal Reserve which gathers to discuss monetary policy. Although the committee is widely expected to sit on its hands, the growing threat of Covid may well prompt the Federal Reserve to renew calls for further fiscal stimulus from the politicians on Capitol Hill.

Returning to the Covid situation, the lockdowns in Europe appear to have taken markets by surprise given the high economic and social costs of placing economies back into hibernation. So called cyclical companies, those most sensitive to movements in the economy, have seen their share prices come under pressure during the course of the last week. With the UK heading back into lockdown, domestic-facing companies listed on the London market, such as pub operators and hotel groups, may well see downward pressure on share prices. With the effective ban on overseas travel for most of the UK population, airlines may also find themselves in a similar position. UK chancellor Rishi Sunak has sensibly extended the furlough scheme and there is growing talk that the Bank of England may pump an extra £100bn into the UK economy. The negative mood in Europe is however in contrast to large parts of Asia which continue to benefit from their early success at virus control.

Volatility in markets can be unsettling but it is important to sit tight and buckle up. Longer term there are definitely reasons to be positive. Most of the current issues facing the markets may well be resolved by mid-2021. The potential for progress on tackling Covid-19, either through a vaccine or advancements in testing and treatment, should not be underestimated. The world is enduring a public healthcare crisis and not a traditional economic slump which we believe suggests that a steeper recovery may well be achievable. Furthermore, central banks continue to be highly supportive and further fiscal stimulus packages are likely to come to the fore.

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