Market Update

It's safe to say that this week has been rather uneventful. We had high expectations for significant events like Brexit negotiations, US fiscal stimulus talks, and major central bank monetary policy meetings, but disappointingly, they all turned out to be non-events.
In the case of the US central bank, the Fed, we didn't anticipate a cut in US interest rates from their current rate of 0.25%, given the potential benefits of additional fiscal stimulus for households and businesses hit hard by the pandemic. However, we were hopeful that the Fed would make some adjustments to their QE program or provide some guidance about its future. Regrettably, all we got was a vague commitment to maintain the current level of QE until "substantial" progress has been made towards its inflation target and employment goals, which leaves us in a 'wait and see' mode.
While we don't expect the Fed to raise US interest rates for several years, it would have been reassuring to have confirmation from Fed policymakers. This confirmation would likely boost global equity markets, especially considering recent US economic data indicating a slowdown in the economic recovery. For instance, US retail sales fell by 1.1% in November, with October's data revised downward from a 0.3% increase to a 0.1% decline. Additionally, weekly US initial jobless claims increased to 885,000 from 862,000, marking the highest reading since early September, as some states implemented stricter lockdown measures due to rising coronavirus cases and hospitalizations.
In the UK, the Bank of England (BoE) also left interest rates and QE unchanged due to uncertainty surrounding post-Brexit trade arrangements. However, policymakers are ready to act to support the economy if necessary.
As for Brexit and US fiscal stimulus negotiations, the political theatrics continue to keep us in suspense. In the US, recent disappointing economic data should incentivize politicians from both sides to cease brinkmanship and pass a fiscal aid package to help struggling consumers and businesses.
This final Market Update of 2020 may come across as somewhat pessimistic, reflecting our frustration that we had hoped for clarity on Brexit and US stimulus before the Christmas break. Nevertheless, we believe that 2021 holds promise for global equity markets, thanks to coronavirus vaccines. However, an aggressive US fiscal stimulus package and a Brexit trade agreement would supercharge the recovery and make 2021 even better!
Lastly, we'd like to express our gratitude for your continued support throughout the challenging past 10 months. In the words of John Lennon from his 1971 song 'Happy Xmas,' we wish you and your family "a very Merry Christmas, and a happy New Year, let’s hope it’s a good one, without any fear."
Rest assured, we are still diligently working to manage your investments over the Christmas period. Our next Weekly Market Summary will be available on Monday, January 4, 2021, unless any major market-moving events occur in the meantime.
In an unexpected turn of events, another Market Update is warranted after an eventful weekend. On the positive side, US politicians have finally reached an agreement on a $900 billion fiscal stimulus deal, providing relief to American households and businesses as the Pfizer and Moderna coronavirus vaccines are rolled out.
Normally, this would be excellent news for equity markets. Unfortunately, with the intensifying coronavirus outbreak over the weekend, especially considering potential travel restrictions complicating or even halting Brexit negotiations, global equity markets have started the week on a downturn. As of our writing, the FTSE-100 is down by over 170 points, or 2.60%.
While the initial market reaction is understandable, it's essential to recognize that many investment bankers and fund managers, particularly in London, are either on holiday or reluctant to make additional portfolio investments during the Christmas holidays when liquidity is typically lower.
While we understand that this market weakness may be unsettling, long-term investors need not overly worry. As we've cautioned before, the path for equity markets is rarely smooth or straightforward. We firmly believe that the situation today with the coronavirus is fundamentally different from what we saw earlier this year. Unprecedented government and central bank stimulus, combined with the rollout of several coronavirus vaccines, lead us to believe that 2021 will be a positive year for global equity markets. Unfortunately, in the very near-term, we may take two steps forward and one step back as equity market volatility is likely to remain elevated, particularly since markets are highly sensitive to breaking news headlines.