GLOBAL EQUITIES
Though the US market is pushing to make new highs, there is a feeling that markets are meeting some resistance at current levels and investors are understandably anxious about what happens next. There is a degree both of excitement and trepidation around the stimulus talks underway in the US with headwinds to be negotiated as the Democrats have made some extensive demands which make the going more difficult. An offer of talks from the White House have been rejected by Speaker Pelosi unless concessions are made and clearly the talks are complicated further by the approaching US Presidential election. The Republicans are certainly showing some intransigence on their part too. The labour market there has been improving, but without some sort of stimulus deal the economy is likely to come under pressure in September.
Biden has chosen Harris as his running mate and remains favourite to be elected but Trump can not be entirely written off. The response of the stock market to the election result will depend on its detail – a Democrat clean sweep of both Houses would probably be a meaningful negative. It should be remembered that Trump’s 2016 victory was originally responded to by markets in unceremonial fashion before it became clear that market friendly policies were likely to be enacted. Even the unpredictability in almost every area of his presidential policy has not been sufficient to hold markets back – perhaps a lesson that the importance and relevance of politics can often be exaggerated by investors.
Markets might not be exactly priced for perfection, but a lot of positive news does seem to be “baked” into asset prices at these levels. Hopes for a vaccine are high, but even if one is found the vaccination of entire populations is not a straightforward exercise. Worrying trends on the virus front are all too observable (German data is hinting at a second wave in Europe) and countries like India could be facing a true humanitarian crisis if things do not improve. National lockdowns in Western economies on the scale seen previously appear to be unlikely in future as the economic damage has simply proved too great. Local measures accompanied by improved test and tracing would appear to be more palatable, both economically and politically.
What the autumn and winter gods have in store for us on this front is decidedly uncertain, but it is difficult to be overly optimistic. The possible combination of a resurgence in the virus, the uncertainty around the US election and the long-term economic damage from the first wave of the virus are likely to create a challenging path ahead. Against this backdrop, the cautious flavour of the portfolios remains unchanged.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns.
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