IN many ways it's hard to believe we are at the end of May already (the weeks and months seem to have blended into each other since Christmas). We are now facing a cautious return to normal life (whatever that is) but some things have changed for ever.
There has been an optimistic feel to the markets recently – most major markets are showing strong double digit growth in the year to date: the S&P 500 is up 10.64 per cent, the FTSE 100 a little more modest at 8.63 per cent and the European markets are up 13.32 per cent in 2021.
Despite last week being rather volatile, on the whole optimism appears to be winning, with the FTSE 100 holding above 7000 – it dipped down to 5000 in March last year.
The global pandemic is far from over, although the picture in the UK is undoubtedly brighter, and it seems certain that we will have to learn to live with the virus rather than eradicate it.
One hundred years ago there was a massive flu pandemic (the Spanish flu) which had a devastating impact, but we did recover from it and so did the global economy. History rarely repeats itself exactly, and there are certainly important differences this time: the unprecedented level of support from the central banks, for example, which has certainly tempered what would otherwise have been devastating in economic terms.
As it is, we can look forward to recovery with reasonable optimism. Unemployment, which in the past has had a brutal impact on the economy, has been limited first by the furlough scheme and now we are seeing a rebound in vacancies. In fact, we look set to have the lowest post-crisis peak in unemployment for 45 years.
Another major economic indicator that has been hitting the headlines recently is inflation. The sharp rise in commodity prices has contributed to this and in April the annual UK rate of inflation more than doubled. This has naturally led to a flurry of speculation as to how high it might climb and is a somewhat unfamiliar phenomenon since we have had a low inflation/low interest rate environment for so many years now.
The recent rise (and fall) in crypto currency has attracted a great many investors to dip a toe into the water, only to experience very high levels of volatility. There has also been an upturn in merger and acquisition activity, an indication that corporations still see value. The housing market too is seeing an upturn in activity, with some regions seeing buyers struggling to get on the ladder.
The general picture is one of optimism for the economy, although some things will inevitably have changed for ever, such as working practices and retail and some which still have a mountain to climb, such as the travel industry.
It's hard to evaluate where we are heading, but when we consider that UK tech funding has grown 10-fold in the decade to 2020 there is certainly reason to look ahead with enthusiasm.
:: Cathy Dixon is a partner at the Belfast office of Smith & Williamson Investment Management. This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise.
