Markets have certainly given us a roller coaster ride in recent weeks with losses in the run up to the US election followed by gains on the outcome followed by euphoria on the back of a potential Covid vaccine.
In this video we look at…
- What’s happened?
- Is it sector specific?
- How does this impact you?
- What should you do about it?
1 – What’s happened?
In outline, markets have rallied. Whether they have rallied too much or not is discussed in the article below but the bottom line is that they have. The UK, Europe and the US are all up significantly since 30thOctober and sentiment has been high.
2 – Is it sector specific?
Yes, very much so. Large tech firms that had benefitted most from Covid restrictions have been the losers whilst those that have suffered a lot during 2020 have been the winners. As the market reacts to the possibility of increased travel, tourism and a return to ‘normal’ we have seen gains for airlines, energy firms and those associated.
3 – How does this impact you?
Well, that depends upon whether you had a well diversified portfolio form the outset. If you did then you would have had a multi geographical exposure as well as exposure to all sectors meaning that you would have captured some of the upside. If you did not and had gone all out on tech based upon the 2020 performance vs other sectors then you would have captured the downside. It has been a great advert for proving the value of diversification.
4 – What should you do about it?
Learn. If you did not enter with a diversified portfolio then see it as an opportunity to consider why you should have done. If you did then pat yourself on the back and keep doing what you are already effectively doing.
Markets explode with euphoria but are they right?
Stock market historians may quibble but I certainly can’t remember a time when blue chip shares soared in the way some of them did today.
The owner of British Airways, International Airlines Group (IAG) rose 40%, airline engine maker Rolls Royce up 33% while cinema owner Cineworld saw its shares rise 50%.
Extraordinary, until perhaps you remember that these companies are the ones whose value has been most destroyed by the coronavirus. IAG for example is still worth more than 40% less than this time last year.
There have been losers today as well. Some of those who have thrived in the time of coronavirus gave back some of their gains.
Home food delivery experts Ocado and Just Eat were both down around 10% and the office workers new best friend Zoom was down 14% as the US stock market opened.Note – it is still worth six times more than it was last year – some habits are likely to stick.
There are also significant challenges in distributing a vaccine which needs to be kept at -80C with stiff competition for the 50 million doses expected to be produced by the end of the year.
Optimism rises
But markets are primarily about sentiment – does tomorrow look better than today – and in that regard there has been a radical and probably permanent sea change.
With more vaccines in development that optimism could grow.
What this result demonstrates is that while the virus is not yet beaten it is beatable.
That ray of light has lit up stock markets around the world.
As always, some people in the markets are already looking for something else to worry about.
If we are returning to a semblance of normality in the months ahead, do the US authorities really need a stimulus package as big as the $3tn to $4tn being discussed by the Biden team?
In fact, does the gargantuan amount of stimulus already announced begin to push up inflation if economies begin to recover quickly.
Those are concerns for another day. For now, the markets, like the rest of us, are enjoying the warm glow of the first significant sentiment boost since the virus started ravaging the world economy.
