As it’s Friday, it’s time for another blog; welcome to this week’s News, Views and Truths.
Would you be disappointed if I did not mention the 2020 US Presidential Election saga? Well, don’t worry, because that’s my topic for the week!
As the votes continue to be counted, the US stock market has rallied hard; over three straight sessions, the tech-heavy Nasdaq, the S&P 500 and the Dow Jones Industrial have all climbed. And although this flies in the face of conventional thought, with the immediate conclusion being that a protracted vote count would be negative for stocks, the most likely outcome is, in fact, very positive.
With Democratic nominee Joe Biden on the cusp of winning the White House and the Republicans likely to retain control of the Senate after Tuesday’s election, this status quo will reduce the chance that Biden will be able to push through his proposed tax hikes. As such, the much-maligned Trump tax cuts will be maintained and, on that basis, the US equity markets are happy. Very happy.
The markets do not want upheaval and they certainly don’t want higher taxes, which would have certainly been on the agenda if the so-called Blue Wave had broken over Washington. And although it increasingly looks like Biden is going to become the next US President, he will have to learn to govern with a Republican Senate.
Another reason for the rally was the action of market participants during the weeks prior to election day. Investment managers had been dumping growth stocks and swapping into more cyclical value names, betting on a Democratic clean sweep and a massive federal spending project come January. However, we are now seeing a gigantic rotation back out of value and into growth; to tech, hence the phenomenal returns in the past 3 days.
After rising on Monday, the bank, oil and industrial stocks took a hit on Wednesday. The SPDR S&P Bank ETF, tumbled more than 5% and Caterpillar plunged more than 7%. Tech stocks, one of the strongest performing cohorts in the market this year, surged. Amazon, Microsoft and Facebook, whose stocks sold off days after reporting quarterly results last week, rallied with high single-digits. Advanced Micro Devices surged 8% and Apple gained more than 5%.
And now economies across the Northern Hemisphere are entering a second lockdown, the eventual cyclical rally looks quite the way off. I’d suggest, it’s going to be more of the same into the end of this year and into the next.
It’s been a pretty exciting week in Three Counties with the launch of our YouTube channel. Not only did we kick it off with a US Election Special with Hugh Gimber, Global Product Strategist for JP Morgan, but we also posted an immediate reaction to the result on Wednesday with James Thomson, Manager of the Rathbone’s Global Opportunities fund.
We have been inundated with requests from the investment world to participate in this venture, created specifically for our clients. To make sure that you do not miss out on any of the content, which will include updates on the company and financial planning topics, I would be grateful if you could subscribe to the channel by hitting the “subscribe” button and turn on notifications by pressing the bell, to ensure you are advised when any new videos are uploaded. And if you like the content, let me know by hitting the thumbs up and posting any comments you may have. YouTube looks at all of these actions and your support would be hugely welcome to make this the success that I believe we can make it.
That’s it for another week; remember to tune into the latest edition of the podcast and I shall see you all next week.