Market update – 26th November 2020

26th November 2020

The equity market theme so far this week has been the same as the last few weeks.  However, coronavirus vaccine optimism currently has the upper hand as further positive vaccine progress not only means that we are finally at the beginning of the end of this horrible outbreak and a return to normalcy is in sight, but it also significantly strengthens the prospects for an economic (and company profitability) recovery in 2021– and as such, equity markets have had a feel-good vibe.

This positivity has also been supported by the conclusion of the US presidential election as the formal transition process from Donald Trump to Joe Biden has officially started, coupled with this week’s massive array of economic data and statements.

Given the recent coronavirus lockdown restrictions, unsurprisingly the weekly US jobless claims came in slightly worse than we had earlier hoped:  while continuing claims for unemployment benefits fell 300,000 to 6.07m, initial claims for unemployment benefit came in at 778,000 – its biggest reading in 5 weeks and clearly highlights the need for a new US fiscal stimulus plan.

However, this was the only major data release that disappointed us as US durable goods orders increased faster than expected in October (at 1.3%), while it was confirmed that the US economy expanded at a record 33.1% annualised rate during the three months to the end of September.  Additionally, US PMI (Purchasing Managers’ Index) data showed no signs of rolling over as both manufacturing PMI (56.7) and services PMI (57.7) improved (and exceeded expectations) during the month – in fact, as 50 is the line separating expansion and contraction, not only do these readings show that the US economy continues to expand, but the expansion is accelerating.

In the UK, while the news headlines focused on how much the UK will need to borrow this year after the Chancellor of the Exchequer, Rishi Sunak, announced his spending plans, it didn’t actually tell us anything that we didn’t already know and as a result, equity markets were already fully aware and braced for it – i.e. the coronavirus outbreak and lockdown restrictions meant that the UK economy hit a brick wall, hence the swollen budget deficit.

As a consequence, it is best to focus on the positive vaccine developments as this will allow economies all around the world to reopen and stay that way, meaning that the long-term prospects for equity markets look good.

Investment Management Team