What is happening?
The laundry list of negative issues that investors have to contend with continues to be long but ultimately, for equity and credit investors, not especially price moving. It does beg the question: if a pandemic, the risk of a hard Brexit and a contentious presidential election can’t stop the upward move in asset prices, what will?
Taking these issues in turn, we do think a second wave of Covid infections was largely expected and those companies most affected by it have already seen their share prices fall considerably to the point they have become small parts of indicess thereby reducing their influence on overall asset class returns. We also think a hard Brexit would be a positive for the UK stock market given the almost inevitable fall in sterling that would follow, and the benefits of that to what is a very international market. Finally, we don’t believe presidential cycles are that consequential for markets. Donald Trump was elected with a pledge to support the US oil and coal industries, and to tackle large technology companies. The former have been the worst investments over the last four years, the latter the best. Equity markets and industries do well despite US politics, not because of it.