05 May 2021
As April drew to a close, US stocks performed well again overall last week, despite Friday’s slump. This rounded off a notably robust month, given that the S&P 500 Index of large US companies had its biggest one-month increase since November 2020, when successful vaccine development subsequently boosted the share prices of many companies.
The election of President Biden had led some market commentators to anticipate a negative impact on US stocks – especially in light of his electoral promises regarding taxes and wealth distribution. Yet the recent buoyant performance in the US market indicates that such concerns are misplaced, at least for now, suggests Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund:
“US equities continue to record new highs in the wake of stable conditions and upbeat corporate earnings. Notwithstanding President Biden outlining progressive-leaning plans for bigger government, higher taxes and greater income redistribution, it seems that stocks have been largely unperturbed.”
“In the period prior to the US elections, there had been a fear that a policy shift in such a liberal direction would be badly received in financial markets, but it seems as if markets are now happy to take this in their stride.”
Recovery in sight
In the meantime, the results of April’s earnings season have given encouraging signs about the likely recovery of many companies. Together with promising data about economic revival across the globe, the news would have appeared to have boosted investor confidence that economic recovery is in motion.
Indeed, companies in Europe have surpassed analysts’ expectations over the past month – for instance, Goldman Sachs gauged last week that businesses in the STOXX Europe 600 Index have beaten earnings estimates by approximately 15%, and it was a similar scenario for the largest companies in the US.
Such earnings results have delivered a sense of optimism for the future, while also giving an insight into what corporate leaders are thinking. According to analysis by Bloomberg, the word ‘inflation’ came up in last month’s conference calls with top executives twice as often as in the previous quarter’s calls.
Ever since the start of the vaccine programme rollout at the end of last year, investors have been attempting to calculate whether the economic bounce-back will mean increased inflation on a worldwide scale. Low levels of inflation are normal; however, there are worries that, if it grows too high, it could cause governments and central banks to modify their policies.
Asset prices have been supported by policies, such as maintaining low interest rates, since the pandemic reared its head last year, and such policies have been markedly positive for fast-growing technology companies. The first quarter of 2021 has seen investors pivot from these sorts of companies to the ones that they anticipate will benefit from an expansive economic recovery and a new investing environment.
Fund managers are including the prospect of higher inflation in their calculations. It’s just one of the many factors they take into consideration when investing your funds, to ensure that they are well positioned for the future.
“Inflation is not something we are too concerned about,” shared Clyde Rossouw from Ninety One, Manager of the St. James’s Place Worldwide Income fund and Continental European funds. He added:
“The companies into which we are interested in investing tend to have pricing power, which means they can raise prices in response to inflation. The more advantaged a business is in terms of its business model, the more it can be effective in its ability to raise prices across the board, and therefore, still price its products or services ahead of whatever the broader inflationary forces are.”
Naturally, the best way for investors to tackle a lack of assurance is, as always, to invest for the long-term with a well-diversified portfolio. When funds are invested in a broad range of assets, their performance doesn’t overly depend on any one outcome.