11 November 2020

A glimpse of the future?

What a difference a week can make!


At the end of October, the benchmark FTSE 100 Share Index was languishing below 5600. Then suddenly investors rushed to return to markets in the wake of Pfizer’s announcement that a workable coronavirus vaccine had been developed. Shares here soared way above 6300. In little more than a week, the index had recovered around 14% of its value. It all goes to show that an appetite for risk remains still.

Let’s put this into context. In January this year the Footsie was close to its all-time high at 7675 (it topped 7900 in May 2018). By late March, as the pandemic began to bite, it had shrunk to below 5000 – a fall of 35% in little more than two months. While the subsequent bounce back took the index back above 6000, it had struggled of late as the economic woes brought about by the measures to combat Covid-19 multiplied.

The change in the leadership of the world’s largest economy seemed initially to have little effect on confidence, other than to provoke a brief relief rally. However, the belief that a vaccine could allow life to return back to something that resembled normality provided a massive fillip to investor confidence. In America, this news saw the S&P 500 Index hit a record high, though interestingly the technology dominated NASDAQ fell initially. Investors clearly believe they know there will be losers as well as winners, though judging which is which this early in the game strikes me as a tad risky.

Back home, the corporate news flow has been dying down, so there has been comparatively little for investors to get their teeth into. On the economic front, the rise in our unemployment rate was largely ignored in all the vaccine euphoria. But it really should be to America and the impending change in the occupancy of the White House to which investors should be paying attention. Future policy emanating from across the pond will have implications for us all.

Joe Biden is a seasoned politician. We know he will come down harder on traditional fossil fuel companies and that he intends to re-join the Paris Accord on climate change. We also expect the Democrats to be more generous with any rescue package for the US economy, though the final make-up of Congress is yet to be determined, making the forecast of what legislation is likely to be passed difficult. Perhaps most important, he is likely to be a more predictable leader.  Let’s hope this new found confidence is well founded.

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