Weekly Market Update: Lockdowns and US Election Raise Market Volatility

Weekly Market Update: Lockdowns and US Election Raise Market Volatility

Mon 02 Nov 2020

Market Update

Global equities suffered their worst week since March, with the sell-off attributed to renewed virus related lockdowns across most of Europe and the final stretch of the hotly contested US presidential campaign. Global and US equities were both down -5.0%. This was despite the fact that Tech giants Alphabet, Amazon, Apple and Facebook disclosed quarterly results that showed revenues climbing faster than Wall Street had been expecting in the three months to September. European equities sold off -6.8% as economic data highlighted that the bloc sank into its third consecutive month of deflation in October as the spread of Covid-19 accelerates across the continent. UK, Emerging Market and Japanese equities were down -4.8%, -2.2% and -2.1% respectively. A sell-off in US government bonds regained momentum at the end of last week, pushing the 10-year Treasury yield back to a four-month high of 0.87%. The UK 10-year Gilt yield ended the week at 0.26%, not far above its all-time low. Oil prices slumped with Brent crude oil, the international benchmark, dipping below $37 a barrel, the worst weekly performance in more than six months. Gold gained +0.6% to $1,878.50 per troy ounce.

CIO Analysis

Last week saw the return of March-like volatility in financial markets, as renewed lockdowns in Europe and the UK weighed on sentiment. A month ago, the probability of country-wide lockdowns seemed remote, but since then the number of new cases has risen exponentially which is why both Wall Street and High Street were caught off guard. While the market stabilised after Thursday, investor uncertainty going into the final quarter of the year is peaking, as previous economic and earnings forecasts are bound to be revised down. While, in the UK, extension of the furlough scheme was welcomed, economists note that the economic help package could have been a lot more generous.  Additionally, markets are holding their breath over the outcome of the US Presidential and Senate races, with portfolio managers especially nervous about the possibility of inconclusive results. At this point, however, all eyes are on December and January when usually measured scientists appear confident that vaccines will be fully developed and approved for distribution.

In this environment, long term investors are presented with a challenging task. On the one hand, they are encouraged to look beyond the shorter term distractions of US elections and a virus which will be, in all probability, eventually dealt with. On the other, they can neither ignore that nor yet fully analyse how these events will reshape the world and change long term projections for risk assets. This is a time when trust in the properties of diversified portfolios needs to be maintained as means of maintaining wealth through these tumultuous times.

David Baker, CIO

Comments

One response to “Weekly Market Update: Lockdowns and US Election Raise Market Volatility”

  1. Your article underlines apparent the contradiction between a correction in Tech stock prices, and these companies posting record earnings. Fundamental analysis cannot explain this. This is also why I’ve turned to technical analysis to get a better feel for market psychology.

    I wanted to share the following technical analysis slides with you and your readers: https://www.slideshare.net/StephaneBottine/top-5-technical-analysis-pdfs
    It curates links to technical analysis PDFs and study guides I have found particularly useful.

    Keep the great content coming.

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