23 December 2020

Tidings of Comfort and Cheer?

Christmas week hardly got off to a promising start for our stock market, but a modest recovery saw much of the damage repaired, though sentiment remained fragile.

The combination of a sharp rise in coronavirus cases, with borders being closed against us as a consequence, and the lack of progress in the trade talks with the European Union saw both the Footsie and sterling take a hammering. At one stage our benchmark index was down by nearly 4% from the previous week’s high, when it flirted with 6600. A modest recovery saw much of the damage repaired, though sentiment remained fragile.

The news that government borrowing had reached yet another record high was also hardly conducive to restoring confidence. A direct result of November’s lock-down, it really came as little surprise that so much money was needed to help embattled businesses. As it happens, the numbers paled into insignificance when compared with what is being spent in America. There, Congress has at last passed the long-awaited aid package to shore up the economy there. Welcomed by both the outgoing and incoming Presidents, the sheer scale of the support being granted demonstrates just how much harm the global pandemic has wrought.

Yet, despite this volatility, shares have held up remarkably well. In part this reflects the absence of attractive alternatives, with bond yields at record lows and cash returning next to nothing. But there is an underlying belief that things can only get better. Next year could see a sharp recovery in our economic fortunes as measures to contain Covid start to allow freedoms to be restored, while the stimulus packages introduced begin to pay dividends. And perhaps we really will see some sort of Brexit trade deal being cobbled together. That at least is the bullish argument.

Most of us, I suspect, will be glad to see the back of 2020. While coronavirus was already present in China when the year began, no-one had any idea that it would turn into the near cataclysmic pandemic that eventually resulted. After all, there had been serious flu like outbreaks in the Far East in the past that had not succeeded in travelling to North America or Europe. Moreover, the economic effects of these were strictly limited. Not so this time.

This will be my last contribution in what has proved a truly unprecedented year. To say it has been tricky truly understates how it has felt. But life in the investment world carried on and I confess to being mightily impressed with the way in which our firm has managed to cope with the restrictions imposed. When I return to share my views as 2021 gets underway, I hope I will be able to report more encouraging news.  In the meantime, have a happy – and safe – Christmas.

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