THE last number of weeks have seen a familiar level of nervousness return to stock markets. Stock and bond markets reflect this uncertainty (the “market” is a collection of individuals and firms after all) and we’re seeing this play out across UK, European, US and more emerging markets.
It’s not hard to see what any one, or a collation of a few possible reasons could be: a resurgence of community incidence of the virus, a return to some form of lockdown across much of Europe and the UK, the ever-closer exit from the European Union and, of course, the US Presidential election. Any one of these in its own right would be enough to move market feeling, but together they are a powerful combination.
We always suspected that winter 2020 would be a particularly hard one. This wasn't especially clairvoyant of us – it wasn’t hard to spot the combination of these issues coming together. The latest round of restrictions is not likely to alleviate that unease. There is some real concern on the economic and human impact of fastening down large sections of the economy and society.
While the US economy turned a corner and reported a return to growth in quarter three, the impact of further lockdowns on energy consumption was seen, as the price of crude oil continued its downward slump back to June levels. We also shouldn't be blind to the fact that when we see impressive growth numbers we should always ask what the starting point was – growth is obviously relative to what has come before.
And then there’s the US election result. I doubt very much if my own or indeed anyone else’s opinion is particularly pertinent here. The US electorate has voted and the US economy will continue irrespective of the individual in the Oval Office.
As the battle against Covid continues in both Europe and the US, with increased knowledge and new treatments, there may be hope that the human cost could be more contained than the first wave. And what is clear is that when the chips are really down, the tendency for central government financial support is at levels not seen before.
Meanwhile, in matters non-Covid, as we edge closer to 2021, hopes continue to wax and wane as to the availability of a Brexit deal. The reality is, Covid or not, this juggernaut is not going to be stopped before the end of next month (yes: next month is December, we can’t believe it either.)
So at times like this, is it appropriate for investors and markets to be nervous? It’s a reasonable assessment to say that there’s quite a lot of high impact events going on, so granted, yes, you would be forgiven for getting a little jittery.
However, investors are also tuned in to look for opportunity in times of stress. Now let’s not get ahead of ourselves: it wouldn't be wise to “bet the house” on anything just now. For longer term investors though, it is fair to say that this could be an interesting moment to deploy diversified investment strategies in order to potentially gain some advantage.
Investors should always remain focused on the truism that a focus on long termism usually outweighs any short term advantage that can apparently present itself to us. So while it may be tempting to either jump in or out at “levels not seen before”, it’s not likely to be a seminal moment in the value of any investment when viewed over the longer term.
As always, the best investment strategies are diversified and long term in nature and above all, it is important to remember that investments can go up as well as down. These are certainly uncertain times we’re living in, but necessity can also be the mother of invention.
And while it may be a little tempting to be reactionary at times of nervousness, as fans of Robin Williams will know, we should just “stay groovy” (or in investment savvy language, remain calm and alert).
:: Jonathan Sloan is head of wealth & investments at Barclays Wealth & Investment Management in Belfast
