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13th November 2020

Graham BentleyGraham Bentley

Avellemy - Market Commentary for October

The drama of our annus horribilis continues to unfold, and as I write this commentary on the morning of the 5th November, perhaps appropriately the strands of the 2020 plot are being drawn together but some uncertainties remain unresolved.

By the time you read this, we will know who has been credited with sufficient electoral college votes to declared President of the United States. At this point the odds strongly favour Democrat challenger Joe Biden to achieve a narrow victory, despite overwhelmingly winning the record popular vote. However, the incumbent's less-than-statesmanlike reaction to results he doesn't like indicates he will not withdraw gracefully. Legal challenges may delay an official result for some time.

While the Democrats have held on to their majority in the House of Representatives, the chances of a fiscal stimulus package being agreed - whoever becomes President - are disappearing as Republicans seem set to maintain a majority in the Senate. A surprisingly resilient and optimistic US stock market was down less than 3% during October; as with humans, short-term behaviour reflects the dominant narrative. We all like a story to hang on to, and the current favourite is that a Democrat President's affinity with tax-rises and more borrowing will be constrained by a Republican Senate. Volatility has dropped and shares have risen by over 5% in 3 trading days.

The UK has stumbled into its second national lockdown as the rate of detected COVID cases continues to rise, thankfully accompanied by significantly fewer hospital admissions, occupied beds and deaths being recorded. With 9% of the UK workforce still on furlough in October prior to new lockdowns being implemented, it is clear that additional fiscal support was required; consequently, the Bank of England is to pump another £150 bn into the economy, which it expects will shrink by another 2% between now and the new year. The furlough scheme will now be extended until March 2021.

Brexit continued to weigh heavily on UK market performance, the FTSE 100 being down almost 5% during October. Mid-month, a European Council meeting passed without an agreement. However, and more positively since then, abandoned negotiations have restarted; EU unemployment rates are now over 8% and a sense of urgency to reach a conclusion, if imperfect, seems to prevail.

Clearly, an increased sense of uncertainty on near-term political and pandemic outcomes has negatively impacted most developed markets. Asia has been the exception though; China's strict restriction of mobility between provinces, maintained since the outbreak began, has paid economic dividends. It is the only major nation showing economic growth in 2020.

Finally, UK-focused equity funds suffered their fourth-worst outflows on record, sadly reinforcing the view that too many retail investors have not had the good sense to retain the guidance of a financial adviser. Now for all of us the world might seem particularly unstable at the moment: Brexit, COVID, lockdown 2 at home, alongside the spectacle of a desperately divided and occasionally hysterical US. Avellemy portfolios remain broadly diversified and fully invested - most clients will have seen valuations fall by around 1.5% during the month, but probably still ahead of the position this time last year.

Your fireworks should be limited to Bonfire Night, and not your portfolios!

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