Market update and portfolio positioning – Keep Calm and Carry On!

The motto ‘Keep Calm and Carry On’ was developed in 1939 by the British Government in preparation for World War II, but the saying seems just as pertinent today. In a world that is increasingly unpredictable, it can be challenging to heed this time-tested advice, especially when markets can fluctuate wildly day-to-day. As markets absorb the news flow, we can expect sharp moves in either direction. The market’s jitteriness can be unsettling when looking through a short-term lens; however, when evaluating markets with a long-term mind-set, the fluctuations can reveal significant opportunity.

The US election once again surprised investors and pollsters alike. Trump performed better on the day given his campaign efforts; however, the postal votes swung heavily in Biden’s favour. Biden is projected to win the Electoral College vote, but given the slim margins in key states, Trump has legally contested this, and has refused to concede defeat. Despite the disputed result, we still expect Biden to be President and he has already been congratulated by many world leaders. The failure of the Democrats to take control of the Senate may have contributed to the positive market moves, as it means Biden’s higher tax plans and regulatory threat to ‘Big Tech’, may be diluted. With the Senate still in Republican hands, borrowing may also not rise as much as feared. Trump’s legal challenges to the election may distract lawmakers from getting a stimulus package agreed. Given the infection rate continues to rise at a record rate in the US, it is in the interest of both sides to agree further fiscal stimulus to slow or reverse the recent recovery.

News that the COVID-19 vaccine being developed by Pfizer and Germany’s BioNTech was found to be more than 90% effective, has lifted the mood across equity markets and some of the most beaten-down sectors in particular, as investors rotated into sectors such as leisure and travel. Whilst the vaccine is certainly a most welcomed scientific breakthrough, in the midst of this euphoria, we should remember that the pandemic is far from over, and cases are still rising. Even if the vaccine is approved later this month, Pfizer will have only 50 million doses available this year and 1.3 billion by the end of 2021. Given two doses of the vaccine are needed per person, this would only be enough to treat 650 million people, or just 8% of the world population. We still need to see positive news come through from some of the other vaccines on trial at the moment before calling an end to the pandemic.

In Europe, rising cases have led to the re-imposition of lockdowns. The UK joined France and Germany as the latest country to announce a full-scale lockdown. To support businesses, fiscal and monetary policy has remained largely accommodative. The European Central Bank (ECB) has indicated they are prepared to do more in December. In the UK, the Bank of England (BoE) has decided to increase the amount of quantitative easing by £150 billion, for a total of £875 billion by the end of 2021. The BoE also stands ready to do more, should the UK economic outlook deteriorate, particularly in response to the outcome of Brexit. Talks remain ongoing, with the deadline for getting a post-Brexit trade deal continuing to move further out.

With markets swinging wildly, we encourage investors to ‘Keep Calm and Carry On’, investing in companies with attractive long-term growth prospects, robust business models and strong balance sheets. Over the long-term, it is these companies that should perform well, albeit they will not be immune from the volatility. We continue to favour a selective approach to equity and credit.

When making decisions involving large sums of money, getting professional advice is universally recommended.

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Update courtesy of  LGT Vestra.