Stock Take

British holidaymakers in France got some bad news last week, when the government said anyone not back before Saturday morning would have to quarantine for two weeks.
The decision left thousands of people scrambling to book the last remaining tickets out of the country, adding to fears of a second wave of the pandemic.

European stocks slumped on the news, with the share prices of tourism-related companies among the worst performers.

The UK’s outlook already looked challenging after economic data showed the economy shrank more than 20% in the second quarter of the year – worse than any other major country.

Concerns are also sharpening about the UK’s future trading relationship with the EU, and the risk of a ‘cliff-edge’ no deal scenario. The pandemic has distracted us from the ongoing trade talks, but there’s still a real risk that the talks fail to produce a deal, argues Guy Stephens, technical investment director at Rowan Dartington.

He adds: “While the absence of the endless political discussion has been welcome, most would probably choose Brexit tedium over COVID-19. However, not unlike the virus, it continues to fester and there are serious economic implications this winter if we don’t get on top of it.”

The US election looms
Joe Biden picked Kamala Harris as his running-mate in the upcoming election battle last week. The former lawmaker is viewed as a moderate voice by many observers, and her appointment has gone down well on Wall Street.

What it might mean for the race is unclear, because the context of the pandemic means that the outcome of the election is less significant for markets than it would be in normal times. The winner’s biggest task will be ensuring the country’s recovery from the blow of COVID-19 – leaving less room for divergence on other issues.

“With fiscal and monetary policy to remain loose regardless of who wins, we doubt the election will have a major impact on the outlook for economic growth in 2021 and beyond,” suggested Andrew Hunter, Senior US Economist at Capital Economics.

Investors are more focused on the shorter-term challenges facing the world’s largest economy. The biggest of these is the response to the pandemic, and, more particularly, whether Congress will agree on another package of economic support for workers and companies. Talks have broken down in Washington on the potential deal.

In the meantime, investors are laser-focused on any information that gives them clues about the economic recovery. A couple of pieces of data released last week pointed towards some green shoots. The first was jobs data in the US, which showed that fewer Americans are applying for unemployment benefits – the second straight week of lower applications. Meanwhile, data also suggested that the prices of US consumer goods are rising again, in another sign of recovery.

US stocks continued their advance last week. The S&P500 stock index has now regained all its losses since the pandemic took hold (although the recovery isn’t spread evenly – big tech companies have done disproportionately well). And some investors sold off US government bonds – which, because it’s a sign of sellers seeking riskier investments elsewhere, can be interpreted as a sign of confidence in the country’s economy.

How to think about emerging markets
China has recovered faster than most major economies, helped by stringent lockdowns that prevented the spread of the virus. Even so, data released on Friday showed that Chinese shoppers spent less than expected last month.

Emerging markets have had a range of responses to the pandemic: some, like China and Vietnam, have been relatively successful; while others, like Brazil, have responded badly.

But even in countries struggling from the outbreak of COVID-19, some companies will continue to thrive and generate returns for investors, argues Ajay Krishnan from Wasatch Global Investors, which manages the Emerging Markets Equity fund for St. James’s Place.

“There are opportunities to be had – we just have to look carefully, to understand and anticipate some of the changes that are occurring,” he says.

He points towards Argentina – a country that is struggling to repay its debts while also grappling with coronavirus. The fund owns an Argentinian e-commerce company called MercadoLibre, which announced last week that its revenues grew more than 120% in the last three months compared to last year, reaching $878 million.

As he notes, a fund manager’s job is to pick a small number of companies that are expected to perform well over the long term. And even in the most challenging times there will be success stories.

Wealth Check

It’s been a tumultuous year for stock market investors. A bull run that had lasted nearly 11 years came to a shuddering halt in early February as the COVID-19 pandemic hit. What followed was the shortest and sharpest correction in stock market history; but quick action by governments and central banks then saw a rapid bounce back.

When stock market shocks happen, the risk is that investors’ emotions take over. They might panic and sell at the first sign of trouble. Or they might attempt to time the market and buy low, hoping to sell for a profit when prices recover.

But losing your nerve or trying the time the market can prove very costly. And this time was no different because, just like previous stock market crises, some of the biggest market moves – in either direction – happened in just a few days. Whether or not you are invested on those days can make a big difference to your long-term returns. The problem is that no-one knows when they are going to happen.

As the chart below shows, a notional investment of £1,000 into the S&P 500 index on 1 January would have been worth £1,065 by 23 July, if it had been left alone as the markets gyrated. Yet, missing just the ten best days of returns over that short period would have reduced the investment to £616.

Source: Bloomberg. Data shown is for the S&P 500 Total Return Index. Past performance is not a guide to future returns. Illustrative index returns do not take account of the costs and charges of investing.

S&P 500 Index discrete one-year returns
Jul 2019 – Jul 2020 Jul 2018 – Jul 2019 Jul 2017 – Jul 2018 Jul 2016 – Jul 2017 Jul 2015 – Jul 2016
3.8% 14.9% 16.1% 16.1% 23.2%
Source: Financial Express Analytics. Data shown for the S&P 500 Total Return Index. Past performance is not a guide to future returns.


The best periods for stock markets often follow some of the worst days. However, if you react to the bad days, you are very likely to miss the good ones. Of course, it can be difficult to sit tight as your investments fall in value. But history shows that, to achieve your longer-term financial goals, you need to stick to the plan for how long you intend to invest.

In The Picture

No major economy has emerged unscathed from the pandemic, as revealed by recent economic data.

The Last Word

We are determined to work through the challenges imposed on us by this year’s circumstances and to select fairly those students of greatest potential who will thrive in their studies here.

The University of Oxford admits over half of the students who, unable to sit their A-level exams, were awarded lower-than-expected grades by a government algorithm. Many of these students come from disadvantaged backgrounds.

Wasatch is a fund manager for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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