Market update – 2nd December 2020

2nd December 2020

Although November ended on a downer as the FTSE-100 fell just over 100 points (nearly 1.6%) on Monday (30 November 2020), overall November delivered some fantastic equity market rallies:  the FTSE-100 rose 12.35%, while in the US the Dow Jones climbed 11.84% and Japan’s Topix ended the month 11.12% higher.

In normal circumstances gains like these would be exceptional – in fact, they are more like what one would be pleased with in a good year, not a span of just four weeks!

However, these are not normal circumstances:  between the US presidential election and its aftermath, coupled with economic data, coronavirus lockdowns and vaccine developments, meant there were no dull moments.

And December has started with more of the same as equity markets have made a positive start, with the FTSE-100 recovering all of Monday’s losses and some.

Although we fully expect the tug of war between the short-term coronavirus impact and vaccine developments will ensure equity market volatility remains elevated, thanks to the potential for the UK to start immunisations as early as next week following today’s announcement that the UK has approved the Pfizer coronavirus vaccine, November’s equity market gains are not only fully justified, but hopefully just the start of things to come as a vaccine will allow the global economy to reopen and more importantly, stay open.

As a consequence, it is important not to underestimate the potential size and speed of the recovery – especially as the consumer is the biggest component of the UK economy.  While this may appear strange given the sad news that both Debenhams and Arcadia have collapsed putting 25,000 jobs at risk, the economy (and the high street) will be the main beneficiaries when lockdown restrictions are lifted and the pent-up demand for shopping and travel is unleashed – especially for those companies that have adapted and remain relevant.  In fact, the retailer Next (which is held in our client’s growth portfolios), not only saw its share price rise nearly 3% yesterday, it has comfortably outperformed the FTSE-100 so far this year as its share price is only 4% lower, whereas the FTSE-100 is down over 15%.

Furthermore, although this week’s important economic data releases are due towards the end of the week, what data we have had so far has had no shortage of signs that the global economy is holding up well despite the recent lockdown restrictions and should also help to fuel the equity market recovery.  For example, the US ISM (Institute for Supply Management) manufacturing survey came in at 57.5.  Although this was slightly lower than the previous reading of 59.3, 50 is the line separating expansion and contraction, so the underlying message is that the US economy’s solid growth is continuing.  Likewise, Monday’s Chinese Caixin PMI data beat expectations with a reading of 54.9 (up from 53.6 in October), while Japan’s industrial production reading for October was 3.8% versus economist expectations of 2.4%.  Let the good times roll.

Investment Management Team