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The motto 'Keep Calm and Carry On' was developed in 1939 by the British Government in preparation for World War II, but the saying seems just as pertinent today. In a world that is increasingly unpredictable, it can be challenging to heed this time-tested advice, especially when markets can fluctuate so much day-to-day. As markets absorb the ongoing news flow, we can expect sharp moves in either direction. The market’s jitteriness can be unsettling when looking through a short-term lens; however, when evaluating markets with a long-term mind-set, the fluctuations can reveal significant opportunity.
The US election once again surprised investors and pollsters alike. Trump performed better on the day given his campaign efforts; however, the postal votes swung heavily in Biden's favour. Biden is projected to win the Electoral College vote, but given the slim margins in key states, Trump has legally contested this. Despite the disputed result, we expect Biden to be President and he has already been congratulated by many world leaders. The failure, so far, of the Democrats to take control of the Senate has contributed to positive market moves, as it means Biden's higher tax plans and regulatory threat to 'Big Tech', may be diluted. It remains to be seen whether the two Senate seats available in Georgia in January 2021 can be taken by the Democrats, thus creating a tied Senate with a 50:50 split. With the Senate still in Republican hands for now, borrowing may also not rise as much as feared, which, as I wrote last week, may force the US Federal Reserve (FED) to do more. Trump's legal challenges to the election may distract lawmakers from getting a stimulus package agreed. Given the infection rate continues to rise at a record rate in the US, it is in the interest of both sides to agree further fiscal stimulus as soon as possible.
Hot on last weeks COVID vaccine news from Pfizer that their vaccine was 90% effective, came an announcement this week from Moderna in the US that it had achieved almost 95% effectiveness in its third stage trial. Whilst the vaccine news is certainly a most welcomed scientific breakthrough, in the midst of this euphoria, the market has more recently remembered that the pandemic is far from over, and cases are still rising. Even if the vaccine is approved later this month, Pfizer will have only 50 million doses available this year and 1.3 billion by the end of 2021. Given two doses of the vaccine are needed per person, this would only be enough to treat 650 million people, or just 8% of the world population. We therefore still need to see positive news come through from some of the other vaccines on trial and we expect to hear more on the Astrazeneca / Oxford vaccine next week, after they tentatively announced good progress in adult vaccine subjects aged in their 60’s and 70’s in the last few days.
In Europe, rising cases have led to the European Central Bank (ECB) indicating they are prepared to do more in December. In the UK, the Bank of England (BoE) has already decided to increase the amount of quantitative easing by £150 billion, for a total of £875 billion by the end of 2021. The BoE also stands ready to do more, should the UK economic outlook deteriorate, particularly in response to the outcome of Brexit. Talks remain ongoing, with the deadline for getting a post-Brexit trade deal continuing to move further out.
The outlook for 2021 does look much brighter and we are very grateful that our clients have trusted our process and been able to 'Keep Calm and Carry On', as we continue to look for companies with attractive long-term growth prospects, robust business models and strong balance sheets. Over the long-term, it is these companies that should perform well, albeit they will not be immune from the volatility. Over the last few weeks, with an eye on 2021 and a widespread global vaccine programme, we have also started to turn our eye to undervalued stocks that have had a difficult 2020, like financials and energy, in the hope that these stocks will also have their day in the sun once we start to return to normal. We look forward to that day.