Here’s our brief update about what’s happening with stock markets at the moment…
September saw a sell-off in US stock markets and in US Tech stocks in particular, many of which have seen very big increases since the lows in March. They were fuelled by optimism over their potential for growth and for solving many of the logistical problems posed by the Covid virus for remote working, communicating and shopping.
They have huge potential to change our lives but their share prices may have got ahead of themselves. Tesla has never made a profit, yet currently has a market capitalisation of 13 times more than Ford Motor Company.
The US market also has the uncertainty over the forthcoming presidential election. It’s proving exceptionally rancorous with President Trump casting doubt on whether he would accept the verdict of a significantly postal ballot based election. This is now flagged up so far as the market is concerned.
Electioneering manoeuvring is also delaying a further stimulus package in the US.
Markets are in somewhat of a holding pattern particularly in the US and in the UK as Brexit negotiations drag on to almost the last second.
Governments and central banks will continue to support the financial system and the markets with abundant cheap money. They are discouraging savers from holding deposits with negligible/negative interest rates. The recent drastic interest rate cuts on National Savings and Investments (NS&I) products is a case in point in the UK.
The Bank of England has again floated the possibility of negative interest rates. However don’t expect the bank to pay you to have a mortgage…
Cornavirus continues to dominate our daily life. It may not seem like in the UK, but better tracking, testing and lessons learned in treatment should result in a lower hospitalisation and death rates
Governments worldwide are reluctant to shut down their economies with national lockdowns. Hence the current localised approach in the UK and Europe to restrict freedom of movement and curtail leisure-based activities. Waiting for effective vaccines and coping is still the order of the day in the meantime.
So where does that leave the stock markets?
We believe the global economy should continue to improve from the large falls in GDP seen in the second quarter. Growth in China is a bright spot. However it seems likely to be a gradual improvement and not a big bounce back.