Market update – January 2021
Market update – January 2021
Markets keep their cool
Stock markets can be remarkably cold-blooded. Despite the renewed turmoil caused by a winter resurgence of Covid-19, global equities remain close to their recent highs. The market calm may be surprising – but it is not irrational; vaccines should put an end to the current acute phase of the pandemic in the first half of the year, while central banks and governments continue to provide significant support. For most of the big firms that dominate equity markets, another few months of disruption will be manageable – especially after significant capital raising in 2020. Sadly, this may not be the case for many smaller organisations.
Over a political hump
Negotiations over a UK-EU trade deal went down to the wire, but an agreement was reached just before the deadline. The deal is of limited scope and separate agreements will still be required for many sectors, including financial services. However, with some form of agreement now in place it is hoped further deals can be agreed with less drama – and less impact on economic sentiment. In the US, Joe Biden is set to become president on 20 January, despite Trump’s continued protests. Following a close Senate run-off race in Georgia, the Democrats will have a slim majority in the Senate, giving them more scope to enact their legislative agenda.
Away from the US election and Brexit, there are other potential flashpoints to worry about. It has been one year since the US assassination of an Iranian general and tensions in the Middle East are high. There are also signs that the Chinese government is adopting a more aggressive approach in its dealings with some of the country’s biggest businesses, notably Alibaba.
Pandemic forces further stimulus
The continued threat of Covid-19 means that governments are in no position to start scaling back fiscal support. In the US, Congress finally agreed on a new stimulus package. In the UK, the Chancellor of the Exchequer announced a new £4.6 billion business support scheme, just months after talking about the need for “hard choices” on spending and taxes. More recently, the OECD has suggested that governments should not rush to tighten fiscal policy, following similar advice from the IMF late last year.
We expect that gradual economic recovery, combined with ongoing stimulus measures, will continue to support global equity markets. However, we remain prepared for periods of turbulence. We maintain our allocation to gold in many multi-asset portfolios. Though slightly below its high point of the last year, we believe it continues to offer valuable defensive and diversifying properties.
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