06 April 2021
Strength in numbers
The closing of the four-day trading week saw US stocks enjoy record levels, with technology stocks experiencing a revival.
This performance was further strengthened by President Joe Biden’s launch of a $2 trillion infrastructure plan last week. While its outlook is wide-ranging, the plan targets areas such as broadband, scientific research and electric vehicles – all of which are set to jump-start the technology sector.
In the meantime, the return on the benchmark 10-year US Treasury note dropped towards the end of the week. This number has been consistently climbing in 2021, having an impact on the prices of many financial assets, and its growth to date seems to have been hanging over the values of certain technology stocks. So, last week’s drop was a good sign for many technology shares.
Time is of the essence
That said, many investors forecast that it will keep increasing this year – perhaps an indication of a more subdued mood for the fast-growing technology companies that have produced such robust returns in recent times? This could, however, be a positive, given the lofty levels of tentative enthusiasm that have recently represented the investing landscape.
Johanna Kyrklund, Group Chief Investment Officer at Schroders and Manager of the St. James’s Place Managed Growth fund, proposed:
“The FOMO market is over; it’s a more broad-based opportunity set now and a more ‘normal’ investing environment. Investors will be able to bide their time, waiting for openings.”
This ‘fear of missing out’ (otherwise known as ‘FOMO’) illustrates the psychology behind the frantic price movements in some stocks that are favoured among amateur online traders. It was a trait of the GameStop spiel in January and February this year, where the share price of a struggling US gaming retailer took an upwards swing as investors piled into its shares in anticipation of a sharp increase. While some of them were correct, others found themselves on the losing side when the share price then dropped.
With an economic recovery looming, it’s likely that markets are entering a calmer phase, suggested Kyrklund.
“In today’s markets a more boring approach – favouring diversification and judiciousness over more racy assets – may be what’s required,” she added.
Archegos – lessons learned?
One of the headlines to feature on financial markets last week was the implosion of investment house Archegos Capital Management. Its higher-risk strategies entailed borrowing substantial sums to purchase financial instruments related to publicly traded companies.
The news has already affected other financial services businesses, with several investment banks reporting anticipated losses, or declines, in their share prices. There was also concern that the news could mean wider disruption in the market, but the upshot to date seems to be largely limited to companies that had dealings with Archegos.
Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund, stated:
“There is no need to be concerned that this will lead to broader contagion. In fact, in discussions with policymakers over recent days, there is a thought that this may serve to tighten up regulation and risk management practices in areas of weakness.”
He went on to say that, while the wider consequences might be limited on this occasion, that doesn’t mean there are no lessons for investors.
“As Archegos reminds us, greed can often end in tears and investing should not be confused with the pursuit of chasing short-term speculative gains,” added Dowding.
Despite the fact that, broadly speaking, the COVID-19 outlook is looking positive, there was news last week that showed it continues to be problematic for the short term. Most notably, several European countries have implemented lockdown measures again, in an attempt to halt the spread of a new surge of cases.
In France, President Macron declared a four-week national lockdown on Wednesday last week. Likewise, Italian lockdown restrictions will be in place until the end of April. Due to these measures, Pope Francis chose to deliver his Easter message to a moderate gathering inside St. Peter’s Basilica, rather than to large crowds in the square outside.