Market update – 27th January 2021

27th January 2021

It has been a tough start to the week for global equity markets given some US senators appear reluctant to pass Joe Biden’s $1.9tr fiscal stimulus package (suggesting it could be either delayed or watered-down), coupled with the slow vaccine roll-out across Europe (which has led to speculation that the continent may extend lockdown restrictions into the summer).  As a result, as we write the FTSE-100 is currently just over 1.3% lower than Friday’s (22 January 2021) close.

As we have previously warned, the path for equity markets is never smooth or easy – and while this week’s cacophony of noise may have soured short-term sentiment, at the risk of sounding blasé, it is neither here nor there as the bigger picture trends are clear and provide a very optimistic outlook.

For example, news that California lifted its stay-at-home orders on Monday (25 January 2021) is particularly encouraging – as we have previously stated, not only is California the largest economy in the US, accounting for around 15% of the country’s GDP, its economy is actually bigger than that of the UK.

Additionally, the current US reporting session continues to positively surprise (of the 97 companies in the S&P 500 index that have so far reported their results, a staggering 79 have beaten expectations); plus this evening, after the US central bank holds its monetary policy meeting, we fully expect the Fed to completely shut down any talk of tapering QE (especially given this week’s speculation on slower/smaller fiscal stimulus) – which will be positive.

In the UK, yesterday’s employment data again surprised on the upside:  although the number of people in work fell by 88,000, which pushed the unemployment rate up to 5.0% from 4.9%, it was lower than the 5.1% predicted by the major economists.

Furthermore, looking at the coronavirus outbreak dispassionately, although the vaccine roll-out has been disappointingly slow in Europe, the scale and pace is accelerating – and ultimately the lifting of lockdown restrictions will probably come as soon as hospitals are no longer being overwhelmed, which is likely to be well before the summer.

Investment Management Team