Buying the dip – a US perspective with UK opportunities

 

It’s almost unbelievable to be reporting on a quarter, which saw the S&P 500 (the US equivalent of our FTSE100) rally 21% in sterling terms finishing June in positive territory for the year so far. This was a three month period that saw most of the Western world in lockdown, the US experience significant social unrest and the oil price go negative. From the start of the quarter however, investors tentatively looked to take advantage of the enormous falls in markets experienced during March. Along with opportunistic buying, many investors took comfort from the levels of support being committed by central banks and governments across the world, and selective economic data that surprised to the upside.

Whilst the gap between the high street and Wall Street continues to widen, many investors have learnt the importance of buying equities following periods of dramatic market weakness. As we headed into the final month of Q2, there was increased commentary about the ‘Robinhood rally’ in reference to the US trading platform. Robinhood is a commission free retail trading platform, which during Q2 experienced three times the average trading volumes year-on-year. This flurry of buying activity became the scapegoat for investors unable to understand the V-shaped recovery in markets without evidence of one in the global economy. Whether or not these Robinhood investors contributed to the rally in markets during Q2, what became increasingly clear is that there is a significant gap in traditionally understood ‘fundamentals’ and the price investors are willing to pay for future cash flows.

Markets have rallied strongly out of the lows of Q1. With the amount of money now in the system, and the continued heightened levels of cash on the side lines, it seems unlikely that we will revisit those lows. Sustainable sectors and sustainability orientated businesses are very well positioned to benefit from increased investment in industries including green technology, green batteries, green and low-carbon vehicles, infrastructure for plastics recycling, energy efficient building materials, green infrastructure, and renewable energy production.

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