WeeklyWatch – Rising COVID-19 cases affect market growth while England goes ahead with ‘Freedom Day’

20 July 2021

Stock Take

Delta dampener

As worries about the Delta variant of COVID-19 persisted last week, along with doubts about the potential pace of recovery, so did the market growth slowdown that’s been seen in recent weeks.

This has also been compounded by the continued high rates of inflation in the UK and the US – in America, Federal Reserve Chairman Jerome Powell sought to calm markets on Wednesday by repeating the message he gave after the last inflation figures: that temporary factors are causing the recent surge in inflation, and that conditions have some way to go before the Fed will change its policies in response.

However, pressure is mounting on central banks to prove they are not being overly relaxed about inflation, with Gordon Shannon, partner at TwentyFour, noting:

“While the Bank of England [BoE] continues to espouse their view that this inflation is transitory, we believe its magnitude and timing may introduce some doubt: 2.5% is yet again a breach of their stated 2% target.

“Furthermore, that above-target inflation is occurring relatively quickly in the UK’s recovery (we have only just reached the 19 July ‘Freedom Day’) appears to dramatically increase the chances that the economy will breach the key 3% CPI level. When the BoE misses their inflation target by more than 1%, it must formally explain the cause to the Government.”

It wasn’t just the threat of inflation affecting the market growth last week – resurging COVID-19 numbers, primarily the Delta variant, have also helped to reverse some of the recent growth markets had been seeing. In the UK, where over 87% of adults have received their first dose of the vaccine, and 67% have had a second dose, almost 50,000 were testing positive daily by the end of the week – levels similar to those we were seeing at the beginning of the year.

And these figures are likely to rise, too. The Euro 2020 Final on 11 July prompted large gatherings across the UK just over a week before final national restrictions were due to be lifted.

Case by case

Other countries, while reporting lower figures, are also finding their case numbers rising. In the US, where approximately 68% of adults have received at least one vaccination, it is reported that cases have doubled since the start of July, although their numbers remain in the 30,000s. France, Germany and other major European countries are also reporting increasing numbers – but, again, from much lower bases.

It is worth noting that hospitalisation rates and deaths are much lower than their previous peaks, and recent COVID-19 cases are primarily being seen among the young. This has, however, caused economic difficulties for many businesses due to the large number of people needing to self-isolate as a result of contact with someone with the virus – in the UK, many have termed it the ‘pingdemic’.

Stock slumps

With these pressures leading to market fears around reopening schedules being delayed and stunting recovery pace, the FTSE ended the week down 1.60% after peaking on Tuesday morning. The STOXX Europe 600 then fell 1% on Thursday and continued to fall on Friday, finishing slightly down overall. The US also saw its markets fall slightly, with the Nasdaq and S&P 500 both dropping less than 1%.

Some sectors were affected more than others by the rise in COVID-19 numbers; the STOXX travel sector was the worst-performing sector in the index, while energy stocks also recorded above-average falls.

Adrian Frost, manager of Artemis’s UK equity income strategies, noted:

“When COVID’s variants resume, investors tend to bail out of ‘value’ stocks, including reopening and reflation trades, and pile instead into a handful of ‘growth’ stocks. When the pandemic seems to be abating, they do the opposite. Last week, markets were worried about Delta Plus and a weaker economy. So, bond yields fell, and growth was in fashion. Then on Friday, bond yields rose, and value was back.”

It is important to remember that a number of markets, such as the S&P 500, Nasdaq and STOXX Europe 60, all remain close to the historic highs previously recorded.

The Chinese economy reported GDP growth of 7.9% compared to the year earlier – although this was slower than the 18.3% year-on-year growth of the prior quarter, the difference was more attributable to the timing of the pandemic last year.

Wealth Check

The unprecedented events of the last year and a half have led to many people’s attitudes changing when it comes to matters such as their health, careers and role in society. It’s no surprise, then, that charitable giving in Wills, which was estimated at around £3.4 billion a year in the UK in 2019, is expected to grow this decade.1 One estimate even predicts this will reach £4.7 billion in 2029.2

Philanthropy isn’t the only advantage to donating in your Will – Alex Loydon, Director of Partner Engagement and Consultancy at St. James’s Place, points out that donating in this way can help to educate the next generation about important issues:

“Charitable giving is also used as a means to engage and educate the next generation; establishing charitable trusts for descendants to manage is a great strategy for this, while at the same time utilising tax reliefs.”

Leaving a donation in your Will can cause complications, however, such as what happens if your Will is contested. This is when your descendants legally challenge the instructions within your Will, underscoring the importance of receiving professional advice at every stage of your financial journey.

Loydon adds:

“If the plan is to give charitably via your Will, and you are concerned that it might be challenged, take professional advice and ensure it is clear that you were of sound mind when the decision was made.”

If you’re concerned about making sure your assets go where you want them to go, making the most of any tax reliefs available, speak to your Wellesley financial adviser.

Sources:

 1,2 Legacy Foresight, Legacy Market Briefing 2020

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

Advice relating to writing a Will, or lasting powers of attorney, or estate administration services, involves referral to services that are separate and distinct to those offered by Wellesley Wealth Advisory and which are not regulated by the Financial Conduct Authority.

The Last Word

“This is the right moment, but we’ve got to do it cautiously. We’ve got to remember that this virus is sadly still out there.”

– Prime Minister Boris Johnson urges caution as COVID restrictions were lifted yesterday in England.

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

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