14 January 2021
With the Goon-Squad invading Capitol Hill and a deadly virus mutating into even scarier transmission levels- it’s easy to be confused by US Equity Markets hitting all-time highs. That performance is mirrored across the developed world- and we haven’t even mentioned Brexit. What is going on?
For a detailed analysis please review the Viewpoint Report from Glyn Owen- Investment Director at Momentum Asset Managers CLICK HERE [9 min read time]. His view will be one endorsed by his Research Department and their in-depth analysis. What follows is a Mondial synopsis- likely to feature in our advisor explanations when cornered by the need to explain the counter-intuition presented by a world in turmoil and a euphoric market.
To repeat- what is going on?
Well, I know the answer. Back in the day when flares were in fashion, John Lennon had just been shot,- I was on my way to my first Banking Exam. My mentor/Manager at the time said “ just remember - supply and demand, if there are more buyers than sellers' markets will go up”. That’s what happened. SYNOPSIS: WHY ARE MARKETS RISING? It gets harder to explain why, and even harder to predict the near future. Two factors to consider. Firstly, a phrase doing the rounds pre-COVID was TINA (There Is Simply No Alternative). There being no alternative to equities. When equities are more popular than other assets – equity markets will rise.
The lack of alternatives is driven by low interest rates. If cash and debt alternatives are low- why would you not accept the risk premium? Owen translates this into more spending: “ with borrowing rates at or close to all-time lows and negative in real terms, the case for increased capital spending is difficult to deny”.
Of course, TINA disappeared during the COVID hits in Feb-March- but the vaccine means she is back with a bang. Back to Owen: “ the extraordinary achievement of scientists in developing effective vaccines in record time have been a game changer. There is now not just light at the end of the tunnel, but the exit is in full sight”.
Secondly, as a stock-broker friend said “algorithms don’t watch the TV”. The machines which conduct the fast-trading “algoe’s” which increasingly influence market trading volume are not shocked by uninvited guests lounging on Nancy Pelosi’s desk. It meant that much of the auto-pilot trading carried on as normal, uninhibited by whatever emotional reaction the likes of you and I might have had from the political theatre in Wahington. SYNOPSIS: AND WHAT OF 2021?
According to Goldman Sachs: Democratic control of Congress and the White House has led to an upgrade in their forecast for US growth from 5.9% to 6.4%. That, according to Goldman’s Rich Friedman, will be played out in a low interest rate environment of long standing. How long- “really no one knows but I think the signals from The Fed is that we are talking about upwards of four to five years- which in the investment world is a full cycle”.
There are always risks ahead- for Owen we will need a seat belt for Q1 of 2021- but by Q4 normal will be a bit more like the old-normal “the first quarter of the year will be very tough and could well result in double dip recession in parts of Europe and North America but thereafter the beginnings’ of a return to near-normality should be underway and the conditions are set for a strong recovery”.
And, if you have to look out for specific areas in the Goldman’s/Momentum views: growth in the US and China the two biggest stock-markets and for the Brits Owen says: “ Together with the UK’s early approval and roll-out of vaccines, the Brexit deal brings much greater optimism, the foundation for a robust recovery, and is likely to herald the end of the long period of underperformance of the UK equity market….“
I will be happy to take enquiries on my email below: Sean.Kelleher@mondialdubai.com
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