WeeklyWatch – Omicron continued to affect markets

07 December 2021

Stock Take

Restrictions apply

Last week, markets continued to be affected by the Omicron variant, as new data materialised on its impact and transmission across the globe.

Germany and Austria took the decision to place further restrictions on unvaccinated individuals last week. Meanwhile, in the US, President Biden ordered tighter restrictions on international travellers. According to the Health Security Agency, the UK had recorded 246 cases of Omicron by the end of the week.

Until such time as more information is available, markets are trying to weigh up the potential impact of the new variant. Adrian Frost from Artemis, a Fund Manager for St. James’s Place, notes that, for now, they seem to be predicting that Omicron will lead to more infections and increased government restrictions in all countries.

Frost wrote that “only time (and data) will tell, of course” – adding that the recent market sell-off resembles that which took place when the Delta variant first appeared.

“But it’s worth remembering that the emergence of Delta triggered a sell-off, similar to last Friday’s, of 2.9% in the S&P 500 from 12-19 July. The yield on the 10-year US Treasury fell below 1.50% in early June and bottomed at 1.18% in early August. Both stocks and bond yields headed higher over the rest of the summer until a week ago, as investors concluded that the available vaccines worked against Delta.”

Cutting back

In the meantime, earlier last week Jay Powell, Chairman of the Federal Reserve, remarked that he’s backing the tapering of the bank’s asset purchase programme earlier than anticipated. When queried by lawmakers, he said that the chances of higher inflation had increased.

He added:

“The economy is very strong and inflationary pressures are high. It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases…perhaps a few months sooner.”

US markets weakened following these statements, with the S&P 500 index dropping 1.9% that day, and the technology-focused Nasdaq Composite index falling by 1.6%.

This is noteworthy for investors because central bank actions have been an important driving force behind the market recovery that started last year. These actions have helped to support asset prices throughout the pandemic; however, with economies now bouncing back, many are preparing to ease their levels of support – or, indeed, have already started to do so. While this will go some way to keep inflation in check, it’s likely to be detrimental to some asset prices.

Didi de-lists

Finally, in Asia, last week’s news about ride-hailing app Didi led to the weakening of share prices of certain companies. Didi announced plans to de-list from the New York Stock Exchange, preparing instead to list in Hong Kong. Its share price dropped around 20%, while other companies listed in New York also fell – including JD.com, Baidu, Alibaba and Pinduoduo.

Wealth Check 

While your pension is likely to be the most important source of income in retirement, other investments and savings can form part of a portfolio of assets that you can use to meet your retirement goals.

Being able to switch different sources of income on and off is especially useful if you’re planning to gradually shift from working to being fully retired, rather than stopping work for good as of a set date.

When calculating how much you need for the rest of your life, understanding that there’s no magic number is a rational starting point. The figure will differ for everyone, and the only way to have a figure that works for you is to contact your adviser to decide what your objectives are for later life and ascertain when certain incomes are going to switch on and off. Mapping out your retirement plans should account for the following:

  • When do your earnings stop and what are your regular outgoings?
  • When does your State Pension kick in?
  • Have you got any Defined Benefit (DB) pension benefits? If you have a scheme in place, it will often be set up to pay out at a certain age. You can generally decide to either take it all as income, some as tax-free cash or ask for a transfer-value figure – but remember that seeking advice is crucial when looking at DB pensions.
  • Can your Defined Contribution pot remain invested? Has your view on investment risk changed? Do you want to take some tax-free cash?
  • What are your other savings and investments, such as ISAs?

Your Wellesley financial adviser can help you to keep a logical head when you make any decisions, and action a plan that is bespoke to you.

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.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

“We’ve really got to be careful before we make any determinations that [Omicron] is less severe, or really doesn’t cause any severe illness comparable to Delta, but thus far the signals are a bit encouraging.”

Anthony Fauci, Chief Medical Advisor to the US President, suggests that early signs about the new COVID-19 variant are positive.

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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