Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are focusing on, and shares our thoughts on the issues of the day.
It looks as if we now have a confirmed winner of the US Presidential election in the form of Joe Biden. The legal basis of the proposed challenges to the result promised from the Trump team would seem to be without much foundation, though it looks as if persuading the current President to depart the White House may be difficult. Despite the ultimate outcome, it can hardly be said that the event has been a glorious success for the Democrats. They may well have got over the line in terms of the Presidency but it was far from convincing and the failure to take the Senate will probably prove material to policy. It will also be interesting to see how the Democratic Party balances itself between more mainstream and “progressive” elements within its own ranks.
The markets (vis US equities in particular) seem more than comfortable with the idea of a divided government as it may allow for the worse excesses of either side to be tempered. True, we won’t get the size of stimulus we would have done with a so-called “Blue Wave” but as a result we are not going to see the sort of tax rises which would have come with it. This is providing some relief for investors. At a granular level, there have been some significant moves already in markets. Though stimulus is still likely, the expected reduction in its scope has led some to question the “re-emergence of inflation” thesis. This has quickly filtered through to asset classes and resulted in a fall in bond yields and some weakness in gold. In the world of equities, growth and technology stocks have been strong whereas value names such as banks and industrials have been relatively weak. This could be the start of a sustained move, or be rather more short-lived, but has been the prevailing trend for some time. Though the Democrats also have “issues” with China, there appears to be optimism from the Chinese authorities that the change of Presidency will being a less confrontational relationship which should of course support global growth.
Whilst the impact has already been material, and may well set the scene for investors for some time, there are clearly significant uncertainties politically and economically. The aforementioned legal challenges may appear vexatious, but a protracted period of court hearings could yet cause concern for investors who, as you have heard us say before, tend to dislike uncertainty. Any suggestion of stimulus being watered down or delayed will be poorly received and it must be remembered that all this is happening against the backdrop of a US economy which is in need of further support. The development path of Covid-19 is another unknown and is likely to attract more attention from markets now that most of the election fallout has been resolved.
It is clearly useful to have negotiated the election (at least the initial voting) but the path ahead is still unclear. The issues which we have previously highlighted around valuations, debt and other long-term structural challenges have not gone away. Accordingly, we remain alert to any opportunities which may present themselves in this rapidly evolving environment. If you can, do join our next Investment Briefing webinar, “America – what’s changed?” at 2.10pm on Thursday 19th November – ask your usual consultant for details of how to join.
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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