Fears of the second wave

I hope this update finds you well and staying safe.

Keys, wallet, phone, mask and hand sanitiser.  Leaving the house has never required so much preparation and focus given the continuing extending list of items that are now needed.

The markets are nervous of a second wave as we see hot spots of outbreaks and spikes in cases. The fear is that all the hard work that has been done will be shattered in a matter of days if the outbreaks are not controlled.

Emotion moves markets and with this being a nervous time the fear of the second wave is giving the markets the excuse to move.

However, there are two other issues that are rumbling on, the US election and the ongoing US and China “war”.

Trump isn’t going without a fight and in some polls, Biden is looking to have a marginal advantage.

It is said that Biden will push for a greener economy but that will go hand in hand with higher corporate taxes. This will see some warm toward Trump if he promises greater tax cuts and more corporate support.

Trump’s ace up the sleeve will be reminding people how much money they have made while he has been in power. The chart below is the Dow Jones and FTSE100 from 2017 to the end of July.  

He will point toward this and try and dress over the damage done with covid over the last 6 months.

We are mindful of the US election outcome and this could well see portfolios being changed accordingly to factor this in.

The US and China “war” is now over smart device apps and technology. Partly this is to stem the stream of money back to China but also to allow the US to keep some control. I don’t profess to know what TikTok is but it’s worth a lot as a business, so it seems.

This is going to rumble on and its now like a messy divorce. Neither side will want a bad outcome and neither side will want to lose face. Both economies do need each other so more middle ground must be found.

Real data released last week relating to the UK economy showed the actual impact of the lockdown.

This is not new bad news it’s the same bad news we knew and have known about for some time. I reported on this a few months back and all furlough and the financial support did was move the problem to the future.

The UK remains to be the hardest hit financially within the developed markets and this isn’t going to be put right overnight.

Now we are firmly in Quarter 3 of 2020, we can look back and see that this year truly has been a game of two halves.

Set out below are charts showing the FTSE100, the Dow Jones and the MSCI AWCI indices.  

As a reminder and as I have covered many times before the FTSE100 is not the UK economy but it’s a really easy index for us to relate to for illustrative purposes like this.

The Dow Jones and the MSCI have been used to show you how the rest of the world has moved over these times. 01/01/2020 to 31/03/2020

As you can see the impact of covid hit hard and fast with the FTSE not having the best of times anyway in the opening weeks of the year.

01/04/2020 to 30/06/2020

Quarter two was a very different story and one which saw some real positives. The FTSE still lagged on growth but there was a positive end result. It was still a bumpy ride when we look at early June, so it wasn’t all plain sailing.

01/01/2020 to 30/06/2020

This final chart shows us the overall first 6 months of 2020 and we can see clearly that the FTSE has most certainly felt the biggest impact here overall with the other two indices being much closer to a neutral point.

If we translate this, we have seen multiple companies announce job cuts and the contraction of the UK economy as a whole is easy to see.

Yes, there are positive points but as we have said before the UK economy is based upon consumption and its begging for us to consume.

Why am I covering this now you may think?  It’s to illustrate that actually being in a diverse portfolio that covers many investment sectors and across the globe is the modern way of investment.

Following just the FTSE for updates is pointless when the wider markets do and have very different returns.

I would always stress that we look toward the bigger picture and ensure we are reviewing our own planning and investment journey and not just following the indices.

Please feel free to get in touch if you do have any questions on any of your financial matters or just want a catch up.