NEWS, VIEWS & TRUTHS (17TH AUG – 21ST AUG)

It’s that time of the week again; a celebratory time when you can reflect on your hard-won gains of the past five days and look forward, in anticipation, to the weekend ahead.  Welcome to this week’s News, Views and Truths!

And a celebration it is.  At least for those of us who are invested in stocks.  And those of us who are invested in US stocks.  

Two records were broken this week; first off, the Nasdaq index booked its 35th record close of 2020, returning a phenomenal 27.37% during 2020 alone, according to Morningstar.  Secondly, and frankly, more of a headline grabber, the S&P 500 index broke through its previous all-time closing high of 3,386.15, closing the Tuesday trading session at 3.389.78.  Year to date, the index is up 6.97%; since the market bottom of 23rd March, that’s a return of 32.30%, again, according to Morningstar.

More importantly, this brings an official end to Wall Street’s shortest bear market and confirms the comeback rally as a new bull market.

Despite Coronavirus.  

And now the fear starts.  Now the discussions commence on the fact that this V-shaped recovery in US stocks is completely dislocated from the economic story on the streets.  

New claims for US unemployment aid rose back above 1 million last week, as the pace of lay-offs picked up again: a worrying sign for the recovery of the country’s labour.  There were 1.1m initial jobless claims on a seasonally adjusted basis for the week ending August 15, the US Department of Labor said on Thursday, which was higher than economists’ forecast for 925,000 claims. 

So why is this not reflected in stock returns?  Well, it is, to be honest.  But you need to look for it.  And again, completely ties into our view of the markets.

The stocks pushing the market further are those that are clearly benefitting from the forced need for digitization; Apple, Amazon, Microsoft to name but three, and to hear more about Apple’s success this week, tune into the podcast. Because of this, the stock market is no longer a reflection of the broader economy.  Or at least the US market is not.  

Closer to home, the UK large-cap FTSE 100 index is continually lagging, due wholly to its reliance on classic value stocks such as financials, industrials and retail.  The leading UK index is still down 18.30% in 2020 according to Morningstar, some 25% behind the S&P 500 and 45% behind the Nasdaq.

45%.  Forty. Five. Percent.

It is clear that the winners in this market are the companies that are most divorced from the underlying economy, with the actual economy in precarious shape.  However, do not fall into the trap of thinking that we have hit a ceiling and therefore it is too late to invest.

From an emotional and behavioural finance standpoint, it is understandable that investors feel nervous when markets hit new highs. However, what is important is to remove that emotion and act rationally.  It is also understandable that the companies that are driving the stock market highs are succeeding in terms of revenue generation; how many times have you shopped online this year?  

Yet once there is further clarity upon a vaccine, heralding in a cessation of the pandemic, there will be huge opportunities in the stocks that have not recovered, offering even further stimulus for growth.

The news may seem bleak; there will be obvious fear surrounding the state of the global economy.  But even more so than ever, the stock market is not the economy.  

Do not let fear stop you from achieving your goals.

This week’s “When Andrew Met…” video is on the website here with an interview with Adam Skerry, manager of the ASI Global Inflation Linked Bond Fund.  Inflation protection is a key element within our investment thesis for the coming year and Adam’s fund plays an important part in all of our portfolios.

Once again, my weekly podcast is also live here, with this week’s guest being Rosemary Banyard: UK investment legend, Citywire Triple A-rated and manager of the recently launched Downing Unique Opportunities fund.  Her views on the UK market are fascinating and it was an absolute pleasure to spend time with her, discussing the stocks within her portfolio and how she feels the UK is uniquely positioned to benefit from the post-Covid environment.

That is it for this week.  Stay safe, stay dry and I shall see you all next week.


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