Wellesley WeeklyWatch – Further restrictions and steep case numbers cause a loss of market momentum

19 January 2021

Stock Take

Hesitation at play

After a buoyant beginning to 2021, markets across the world nevertheless lost pace last week, as they contemplated the less-than-ideal economic data in light of the pandemic.

“The past week has been characterised by a loss of momentum in financial markets, following on the back of a couple of months of healthy returns,” wrote Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund.

Promising progress against the coronavirus, including the rollout of mass vaccination programmes, aren’t yet enough to quash the feeling that the road ahead will be littered with many hurdles. Last week, China recorded its highest number of cases per day in more than five months, while France enforced a new evening curfew for the entire country. Biopharmaceutical company Pfizer, meanwhile, announced that it will temporarily reduce some of its supplies as of next week, in order to ramp up production – not the news that EU countries wanted to hear amidst already-slow vaccine rollouts.

The picture is, however, fairly positive in the UK, where vaccination programmes are performing more effectively than those in Europe, and there were also some early indicators that the lockdown measures are having a beneficial impact on case numbers. Government scientists put the ‘R number’ – the rate at which the virus spreads – at 1.2, compared to 1.3 from the previous week.

That said, many areas are still afflicted by high case numbers – on Friday, the UK banned all travellers from South America and Portugal due to unease upon the discovery of a new variant in Brazil. The UK government then swiftly announced further travel restrictions, including the closure of all travel corridors, which will be in force until at least 15 February.

The US tempest

Elsewhere in the world, the political storm was far from over in Washington, with Donald Trump being impeached for the second time. The first president in history to ever be impeached twice, the House of Representatives’ broke party ranks and made this historic move after Trump goaded his supporters to attack the Capitol almost two weeks ago, which descended into violence and bloodshed.

Now facing a trial in the Senate, the timing means that the verdict of Trump’s impeachment trial can only be delivered once he has left office. If found guilty, he could not only lose some of the benefits afforded by former presidents; but, indeed, he may also never serve again in any federal office.

Unaffected by the latest dramatic headlines, markets appeared to be more concerned with the longer-term repercussions of the incoming administration. Investors have weighed up the unparalleled developments in Washington and concluded that they aren’t as critical for investment returns as the economic backdrop.

Spend to mend?

Last Thursday, markets studied the details of Joe Biden’s pledge regarding the future of the economy. In his speech, he vowed that his government would support the economy by providing an extra $1.9 trillion of public spending, which includes an additional $1,400 to all Americans (on top of the $600 that they have already received). He also reiterated his campaign message about funding the stimulus with higher taxes on large companies, adding that he would ensure that “everyone pays their fair share”.

Investors are keeping a keen eye on this extra spending, in the hope that it will support the US economy’s recovery in the months to come, amidst high infection rates and worsening economic data, which are causes for grave concern. Last week’s figures indicated that the number of people filing for jobless benefits increased by its biggest weekly figure since March 2020. Meanwhile, on Friday, Wall Street stocks saw a downturn after official figures revealed that retail sales fell short of expectations in December.

The forthcoming weeks will be somewhat telling as to what the state of play is for the recovery of the global economy, as ‘earnings season’ gets underway. Large public companies are due to release their earnings figures for the past quarter – those reports will be full of clues that investors can use to gauge how well companies are coping in these uncertain COVID-19 times.

Adapt to survive

While the end of the week was not so rosy for the London stock market, it has, however, enjoyed a decent start to 2021 thus far – some market commentators imply that this could be put down to the effect of the post-Brexit trade deal that was signed at the 11th hour last year. Recent figures for gross domestic product (GDP), released on Friday, showed that the economy shrank by 2.6% in November compared to the previous month.

Nevertheless, the dip was lower than some forecasters had anticipated. Could this be because businesses adapted better to November’s restrictions than they did in spring last year? Paul Dales, Chief UK Economist at Capital Economics, said: “The economy has built up a fair bit of immunity to lockdowns.”

“Overall, we think that the UK market has the ingredients for better performance relative to other markets than of late,” said Adrian Frost from Artemis, which manages the UK & International Income fund for St. James’s Place.

He adds:

“It would also appear that corporate fundamentals are much better than one would have feared just a few months ago. While Brexit may provide another leg higher for previously unloved value stocks, it should be good for UK equities as a whole.”

Wealth Check

According to a new report by The People’s Pension and State Street Global Advisors, three quarters of savers are in danger of running out of money in retirement.1 The research flags the many risks savers are up against in retirement, following the introduction of the pension freedoms in 2015.

Indeed, these freedoms offer greater flexibility and personal choice as to how assets and savings are used during retirement; however, the reforms have meant that people have to be that much more accountable for their own retirement solutions. But nine in 10 people don’t have a plan in place – delaying doing so for fear of the truth, according to The People’s Pension.2

The majority of savers are making poor choices and withdrawing money too quickly – but many were also found to have miscalculated the effect of inflation on retirement savings, and how long they’re likely to live.3

“A significant number of people are sleepwalking into retirement and will have a worse quality of life in later years than could have been the case if they had been guided,” said Phil Brown, Director of Policy and External Affairs at B&CE, the provider of The People’s Pension.

The retirement game can be less than straightforward, and everyone can make ill-advised moves. But the benefit of financial advice means that savers are fully informed, and therefore make better decisions.

“It makes sense to take financial advice on an ongoing, regular basis in retirement,” said Tony Clark, Senior Propositions Manager at St. James’s Place.

“Not only will your St. James’s Place Partner help you to create a regular income plan that is personalised to you, they can also help you to avoid some of the pitfalls and the common mistakes that many people make along the way that could cause real problems in the future.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Sources:

1, 2, 3 The People’s Pension and State Street Global Advisors, New Choices, Big Decisions – 5 years on, a survey of 50 UK adults, January 2021

In the Picture

According to a study of UK savings habits during the pandemic, higher-income households and retirees have bulked out their savings – but many of those on lower incomes or unemployed are under pressure to run down their reserves.1

What’s likely to happen to the savings amassed by higher-income households? Bank of England research reveals that 90% of them anticipate paying off debts or adding to pension savings – just 10% say they will increase their spending.2

Sources:

1, 2 Bank of England, NMG Household Survey and Bank Calculations, November 2020

The Last Word

“The plan is to get the first 15 million most vulnerable people vaccinated with the first dose by the middle of February.”
– Sir Simon Stevens, Chief Executive of the NHS, as over-70s begin receiving their first COVID-19 jabs this week.

The information contained is correct as at the date of the article.

Artemis and BlueBay are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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