Wellesley WeeklyWatch – Worldwide markets get coronavirus vaccine boost

09 February 2021

Stock Take

A turn for the better?

As the number of people receiving their coronavirus vaccine swelled, the global stock market enjoyed its most buoyant week since November 2020. While new COVID-19 mutations are cause for concern, the battle to overcome the pandemic appears to be favouring the winning side.

For example, early data from Israel imply that cases and hospitalisations are taking a downward turn among vaccinated groups. Indeed, the country is the forerunner in administering COVID-19 jabs, and its success is a beacon of hope on the horizon.

On another positive note, markets also stabilised once the GameStop matter appeared to take a back seat. GameStop’s rocky share price, brought about by an online troop of amateur traders, had made wider waves on the markets in late January. However, as the stock steadied last week, the chatter around the saga seemed to hush down.

Figures also revealed that job creation in the world’s largest economy had crept up somewhat over the past month.

Mettle in tech

Ruth Porat, Chief Financial Officer of Alphabet (Google’s parent company), credited America’s economic recovery as one of the reasons behind its robust results that it published last week. In the three months of 2020, Alphabet’s revenues rose almost a quarter, to $56.9 billion, compared to the same period in 2019.

The surge can be largely attributed to the fact that Google’s business customers are starting to spend more money on advertising again, Porat added. The last three months have witnessed a “broad-based re-engagement” across many fields, as companies begin to plan for the future in a more optimistic way, she said.

Despite the fact that the recent outcomes are favourable, the new Biden administration in the US has reported its plans to reduce Big Tech’s power. Some commentators believe that large companies, like Alphabet, are therefore at risk.

That said, the power of these companies’ business models means that investors should still have confidence in their futures, shares Hamish Douglass, co-founder of Magellan, which manages the St. James’s Place International Equity fund:

“Alphabet is one of the strongest business models the world has ever seen. A little bit of regulation is not going to kill this business. It’s going to come at some cost, but it’s a cost that’s well within the guardrails of where the share price is.”

Meanwhile, back across the pond, the weekend saw the UK Treasury poring over tax hikes for those technology firms and online retailers that have thrived during the pandemic.

Such proposals appear to be in their infancy and so are unlikely to make an appearance in the upcoming March Budget. The UK’s budget deficit, however, may reach £400 billion in 2021, and so Chancellor Rishi Sunak is looking for ways to replenish the public pot without putting the economic recovery in jeopardy.

Where online businesses have prospered during the pandemic, their share prices have likewise seen a boom. Investors are now digging deep in order to own shares in large technology firms, with such companies accounting for an unequalled proportion of the US stock market, having been the driver behind the expansion of the S&P 500 index since March last year.

In such testing and uncertain times, it’s reassuring to own any business certain of a bright future. On the other hand, it’s also unwise for investors to overpay to feel comfortable, writes Tye Bousada from EdgePoint, which manages funds for St. James’s Place.

 

Super Mario Land

Last week, Sergio Mattarella, Italy’s president, requested that the former head of the European Central Bank, Mario Draghi, form a government, following the former PM’s departure.

Having navigated the eurozone through various plights, Draghi is an international political key player. His current challenges atop Italy’s government are obvious: the dual problems of COVID-19 plus a grave economic crisis.

“Signor Draghi certainly comes with bags of credibility following his time at the ECB, although we are a little concerned that his character may be better suited to the role of a president rather than a PM,” wrote Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.

“During his tenure at the ECB, Draghi had a relatively singular leadership style. However, as a prime minister of a government propped up by multiple parties and factions, there will be a need to build consensus and bring others with him. This may stymie some of what Draghi may want to get done and create an environment where clashes could be inevitable.”

Wealth Check

The volatility of last year’s markets were a stark reminder of how emotionally draining investing can be. Our investment ambitions are often related to life goals or future plans, and so severe market falls can seem to put these at risk, resulting in an overwhelming, stressful and altogether worrying time.

According to a recent study by Schroders, the degree to which we feel secure about our financial futures and our everyday expenses shapes our financial well-being. The asset manager found that, for most people, financial well-being is defined not by high levels of wealth, but the freedom that comes with not having to worry about money.1

While the majority of those surveyed had stable household finances, a lack of longer-term financial planning was found to be affecting people’s financial well-being, as they worried about the future for their families and themselves.2

Those approaching retirement worryingly stated that their lack of confidence in managing their money was impacting their ability to relish life, with almost one in six regularly or occasionally feeling stressed about their financial situation.3 Just 37% said they were on track to retire with enough money.4

Just as fear or worrying about the future can harm our well-being, financial planning can help boost it. Over a third of those surveyed identified that having a sense of control and foresight over finances could boost their confidence, and other areas of well-being.5

You can’t put a price on the peace of mind that comes with financial well-being, and financial advice can help you achieve it.

Sources:

1-5 Schroders, survey of 2000 adults, Sep 2020

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

In the Picture

Last week saw the world pass a landmark in the ongoing battle against COVID-19, with the number of people vaccinated exceeding the total number of confirmed cases. There was a real sense of optimism in markets regarding the world’s resilience for recovery.

The Last Word

“Keep inventing, and don’t despair when at first the idea looks crazy. Remember to wander. Let curiosity be your compass. It remains Day 1.”

– Jeff Bezos steps down as CEO of Amazon (to become executive chair) after 27 years at the helm.

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

BlueBay, EdgePoint and Magellan 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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