21 August 2020

All Change!

We are, of course, in high summer, with fund managers on bucket and spade duty and the first half reporting season for companies pretty much at an end.

Yet much is happening around us that could well affect investor sentiment. Aside from the ongoing disruption posed by the coronavirus pandemic, the government seems to have hit a low point in terms of trust, thanks to the exam debacle and subsequent U turn (one of several, I regret to say as a once Conservative constituency chairman), while the Democratic Presidential campaign has kicked off to a virtual start.

Given the criticisms heaped on the incumbent of the White House and the probability that this will be a bruising and bad-tempered fight, you might have thought US investors would be heading for the hills. But stock market indices are flirting with all-time highs, while our own share market remains remarkably subdued. We are down by more than a fifth from our peak and by not much less than that since the start of the year. True, we have bounced back from the March lows, but the FTSE 100 Share Index is still lower than the levels achieved at the end of the old millennium more than two decades ago.

While this might be explained by the fact that our economic performance since the start of the pandemic is the worst of the G7 major countries, our benchmark index is actually very globally focussed, so is not really a reflection of how we are doing domestically. With European bourses also lagging America, one is drawn to the conclusion that either indices on the other side of the pond are too high, or we have some catching up to do.

Of course, the powerful US technology sector has played a big part in driving indices higher, though there are those that wonder if another tech bubble is in the making. Certainly, many more traditional sectors continue to suffer in this strange Covid world we are experiencing. Witness the news that thousands of jobs are to be shed by Marks & Spencer, a sure sign that the high street continues to be under pressure.

The M&S experience is hardly unique. Look at the way in which John Lewis, Boots and WH Smith have also announced job losses. But despite robust food sales and a flourishing on-line business, sales in its high street shops are way down. In some measure this was already on the cards, so the slimming of the work force looks more like the management bringing forward a promised restructuring because of coronavirus, rather than a reaction to changing circumstances. Still, the decline of the high street is accelerating and we may see more dramatic changes in how businesses operate as the pandemic changes the way we behave.

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