Market Commentary July 2021

It is the eternal mystery – the days are long, but the years are short – and 2021 is no exception, with the months whizzing by and the mid-year already here. History will likely remember 2020 as the COVID-19 pandemic year, and 2021 as the recovery year. The health recovery is clearly underway, thanks to vaccines. Yet vaccination rates vary widely country by country. Politics is a factor, along with suspicion about treatments that were developed so quickly. The economic recovery is equally underway, aided by government stimulus. People-facing industries are seeing a return to something like the pre-pandemic normal, although a shortage of workers is slowing the process. And it’s not just workers that are in short supply; everything from semiconductors to bricks are subject to lengthening lead times, with subsequent price rises leading many to fret about the inflationary implications.

Market Commentary June 2021

Stocks have been marching to a steady drumbeat of good news, reflecting vaccine distribution, general reopening optimism, and plenty of government stimulus to get a creaky economy back in gear. The parade stopped cold for a moment, however, before lurching back at an unsteady pace. The cause was inflation, which is as nefarious to markets as a reality as it is as a fear. The Consumer Price Index rose 1.6% in the 12 months to April 2021, up from 1% growth to March. Economists always say that a single month of data can be misleading, and that may have been the case with April’s inflation data. However, the CPI captures pricing trends across the economy, from the cost of raw goods to the consumer reaching for his or her wallet. The data may not be an indication of inflation getting “out of the bag”, but it cannot be ignored either.

Market Commentary May 2021

With April winding down, you can count on someone, somewhere saying, “sell in May and go away”. That pronouncement is mainly popular because it rhymes, but there is truth behind it. Since 1966 the All-Share index has delivered a total return after inflation of 7.9% on average from Halloween to May Day, but has lost an average of 0.6% from May Day to Halloween – even including dividends. This is because in March & April lighter evenings and warmer days cheer us up, which makes us more willing to take risks such as buying shares. So prices rise to high levels, which are difficult to sustain over the summer. Likewise, in the autumn the darker nights make us gloomier, with the result that prices fall to low levels from which they recover.

Market Commentary April 2021

America’s financial titans are coming to a consensus: We are on the early edge of the biggest economic boom since World War II, with the promise of years of growth after the containment of the pandemic. They might be wrong, but all point to the same data – this expansion will be kickstarted by trillions in spending from Presidents Trump and Biden, the Fed’s easy money, and piles of cash that consumers and companies accumulated during the COVID shutdown. This is likely to be a global phenomenon, because the Biden administration’s spending will have ripple effects around the world. Governments’ actions in response to the pandemic has raised global GDP growth by a full six percentage points, estimates the IMF, adding that “the global growth contraction last year could have been three times worse than it was”. Still, total output shrank so much – by a stunning 3.3% in total – that there’s now an unprecedented amount of slack in the global economy. In other words: The world has more potential upside than ever.

Market Commentary March 2021

There’s nothing like a week-long of selling to get the bullish juices flowing once again. After the S&P 500 set a new all-time high on 25th January, GameStop hysteria seized the market. A relatively small set of retail investors, embracing YOLO (“you only live once”), pushed the shares of the troubled retailer up ten-fold to unsustainable highs, an epic short squeeze that slammed multiple over-exposed hedge funds. Although the frenzy occurred amongst a small group of investors, fear grew that an equity asset bubble had been discovered, and broad selling took over. By the end of January, the S&P 500 had fallen 3.7%. Conveniently, the index closed right on its 50-day moving average. With investors concluding that GameStop was an isolated episode of madness, YOLO was pushed aside by FOMO (“fear of missing out”) and the market embarked on a strong recovery run.

Market Commentary February 2021

In 1849, Jean-Baptiste Alphonse Karr wrote, “The more things change, the more they stay the same”. Now, over 170 years later, technical analysts are using his prophetic statement to warn investors of a potential top. The stock market is indeed high and is characterised by typical market exuberance – whether it is historically low put/call ratios, record-high active investor equity exposure, record levels of margin debt or very high levels of bullishness on investment polls. At these times, it is worth recalling Humphrey Neill’s 1954 book, “The Art of Contrary Thinking,” where he wrote that the public is often right during the trend, but wrong at both ends.

Market Commentary January 2021

We wish all our clients and readers a very Happy New Year. 2020 was a remarkable year, by any stretch of the imagination, and one I am sure we would all like to put behind us. Looking forward to the next 12 months, we are, by our very nature, optimistic. Widespread vaccination programmes are expected to be in place worldwide by June. Unemployment should drift downwards as many, though not all, workers are called back to work and interest rates are forecast to remain low. Ironically, it is China that will continue to lead global growth. There are risks – global growth could disappoint, and valuations are high, almost predicting perfection. But with a calmer political environment, both in the US following Biden’s victory and the UK following their free trade deal with the EU, we see stock markets returning close to their long-term averages of 8-10% for the year.

Market Commentary December 2020

Even with a stout selloff on the final trading day, November will go into the books as one of the best stock months in decades. Good Novembers often set the stage for good Decembers, and there is reason to believe stocks can carry a bit more strength into their final stretch in 2020. In years in which the market is positive through 11 months, as it is in 2020, the last of the bearish money managers are forced to capitulate or risk the wrath of their clients. Scrambling for return, these bears-turned-bulls will tend to window-dress clients’ portfolios with the stocks that have worked best all year.

Market Commentary November 2020

The COVID-19 pandemic has achieved another grim milestone with the global number of coronavirus cases exceeding 50 million. US data is troubling, while trends in Europe are flat-out alarming. The new wave of infection worldwide has followed relaxation of lockdowns on restaurants, bars and other gathering spots along with the natural inclination to move indoors as colder weather arrives. Fortunately, fatalities are not fully tracking the rise in new cases. But governments want to get ahead of the curve before it worsens with further lockdowns and tightening restrictions that were eased just months ago. Amid widely disparate commentary from health professionals, Dr Anthony Fauci, one of the US’s top infectious disease doctors, has argued that national lockdowns are not the optimal way to combat the disease. Instead, he argues that citizens should maintain proven public-health measures such as masking and social distancing “to help us safely get to where we want to go.” With the devastating effect lockdowns have had on the economy, we could
not agree more.

Market Commentary October 2020

The financial pain of the pandemic has mainly focused on those least able to afford it – low-wage workers in people-facing industries, such as restaurant workers, airline employees and physical trainers. Knowledge workers, who have been able to continue working from home, have been less affected by the shutdown. Indeed, this group of workers has benefited – not from higher wages, but from sharply reduced costs. Without being able to spend their salaries, their saving rates have rocketed. Increasingly, reporters have adopted the term “K-shaped recovery” to describe this disparate experience of those at the top and bottom of the economy. The structure of the letter ‘K’ lends itself to this analogy, as the fortunes of those on the upward thrusting arm of the letter diverge from those on the downward-sloping leg. It is certainly a more apt analogy than that provided by, say, a V-shaped recovery, with its assumption that we are all in this together. Given that the stock market is experiencing its worst case of indigestion since March, the message is simple: the economy – and by extension the stock market – cannot flourish if a large segment of the population is left behind.