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WeekWatch

16 August 2021

Stock Take

US markets enjoyed a strong week, moving further into record-high territory, in part thanks to the progress of a $1 trillion infrastructure bill making its way through the Senate.

The bill includes $65 billion to expand high-speed internet access, $110 billion for roads and bridges, and billions for air travel and rail, to name a few examples. The bill passed with full Democrat support, alongside a significant number of Republican Senators, although it may face difficulty progressing through the House of Representatives. There, Speaker Nancy Pelosi looks set to stop the bill progressing unless the Senate passes a further bill for $3.5 trillion targeting social issues, such as climate change, healthcare and childcare.

Both the S&P 500 and the Dow Jones Industrial Average finished the day on record highs after the news. The Nasdaq, which is weighted towards technology shares, fell over the same period, however.

This set the tone for much of the rest of the week for the S&P 500 and Dow indices, which both finished the week at record highs. The Nasdaq slipped over Tuesday and Wednesday, before recovering in the back half of the week to finish slightly down.

Part of the issue for the Nasdaq was higher-than-expected inflation. On Wednesday it was revealed to have remained at 5.4%, the same number recorded last month. However, it had been expected to drop slightly. This has reopened questions around when the Federal Reserve might look to raise interest rates and taper some of its support measures brought in to fight the economic effects of COVID-19. With the meeting at Jackson Hole coming up, these questions may well intensify in the coming weeks.

Meanwhile European shares continued to go from strength to strength, sustaining their growth streak throughout the week to move further into record territory. The pan-European STOXX Europe 600 has seen its numbers rise on the back of strong financial results from its members over recent weeks, as the continent continues its recovery from the worse of the pandemic. Sentiment on the continent is also improving thanks to vaccine efforts, which have continued to develop.

The FTSE 100 has been slower to catch up to its pre-pandemic peaks than its EU and US counterparts; however, it performed comparably over last week on the back of strong economic data. Figures released on Thursday showed 4.8% GDP growth in Q2 2021, as the effects of the economy opening up began to be felt. Although it remains below its pre-pandemic peak, last week saw it cross the 7,200 score for the first time since March 2020.

Turning to developing markets, China continued to strengthen its regulatory hand over the economy with a new five-year plan. Chinese tech stocks have been reeling in recent weeks from regulatory actions from the Chinese Communist Party, and the new forward-looking plan suggests these companies can expect this pressure continuing for some time. Falling tech stocks continued to hamper Chinese stock markets as a result.

COVID-19 has been creating political pressure in a number of other developing countries. James Syme and Paul Wimborne, Senior Fund Managers at J O Hambro Capital Management (co-manager of the St. James’s Place Global Equity and Global Quality funds), noted that a number of populist leaders in the world have been challenged by the virus: “We see this at its most stark in Brazil, where opinion polling on the Bolsonaro presidency has largely tracked COVID case data. In Turkey, economic stress is elevated because of policy mistakes as well as the impact of COVID, but the effect in aggregate is that the governing AKP (and President Erdoğan) are closer to losing power than at any time since 2003.”

They added: “Governments claiming to operate on a more technocratic basis (sometimes using this as an excuse for holding to weaker democratic values) have not been immune. In Malaysia, the governing Bersatu party have lost their coalition partner and are (at the time of writing) using the pandemic-driven suspension of parliament as a tool to cling to power.”

With vaccination efforts comparatively low in many emerging market countries compared to more developed nations, it may be a while before we see the more long-term political and economic effects on these countries.

Wealth Check

New activity in the UK housing market slowed in July, ending a four-month streak of increases, according to the latest residential market survey from the Royal Institution of Chartered Surveyors (RICS).1

However, even though sales have dropped slightly, the value of UK properties hasn’t taken a hit. House prices still increased last month – with nearly 80% of the surveyed respondents reporting higher prices.2 RICS attributes the growth to a lack of supply.

The drop in new activity is partly due to the reintroduction of Stamp Duty on many homes, say the report’s writers. The sales tax, which was suspended by the government last year on homes up to £500,000 to keep the housing market buoyant during the COVID-19 crisis, was reinstated on homes up to £250,000 in July. In October it reverts to £125,000.

“Although the tapering in Stamp Duty is beginning to have some impact on RICS activity indicators, the overall tone to the market remains firm, with the metrics capturing price expectations showing few signs of wavering,” noted Simon Rubinsohn, Chief Economist at RICS.

The high level of activity in the property market despite the Stamp Duty renewal has resulted in St. James’s Place seeing its biggest month for mortgage completions in July for 15 years, notes Paul Johnson, Head of Mortgages at St. James’s Place.

He adds: “There is a definite lack of housing supply in certain areas of the country, which is seeing the return of gazumping. However, the key message is not to overcommit yourself when purchasing a property. Make sure you can comfortably manage the mortgage payments and take advice on the best mortgage for you.”

Your home may be repossessed if you do not keep up repayments on your mortgage.

1, 2 RICS, UK Residential Market Survey July 2021 (264 responses from chartered surveyors)

The Last Word

“The requirement [to self-isolate] for double-jabbed and under-18s who are contacts of people with COVID-19 has been removed as we cautiously take another step back towards normality”

Health Secretary Sajid Javid announces a further loosening of COVID-19 restrictions in England and Northern Ireland

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.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2020. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2021; all rights reserved

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