Market Commentary Mid September 2020

Monthly asset allocation September 2020:

Source: Pictet Asset Management

Our business cycle scores offer some grounds for optimism – brighter prospects for the developed economies have enabled us to upgrade the outlook for the world as a whole to neutral from marginally negative. One key positive development has been Europe’s newly agreed EUR750 billion recovery fund. Encouragingly, 70 per cent of it is expected to be spent over the next two years. China remains ahead in terms of the extent of its recovery, which, along with a weaker dollar, should be supportive for emerging markets and for the materials sector. Whether the vantage point is the economy, the political landscape or Covid-19, Europe appears to be in better shape than the US. Which is why we retain an overweight position in European stocks. EU member states’ endorsement of the Franco-German led EUR750 billion recovery fund last month and the ECB’s continued monetary stimulus put the European economy on a much firmer footing; we have consequently raised our forecast for the region’s GDP growth for 2021 by 1 percentage point to 7 per cent. Crucially for investors, Europe’s stock markets do not yet discount the region’s improving economic prospects. Particularly when compared to their US counterparts.  US stocks are already very expensive in any case. For US equities to maintain their current price-earnings multiple of around 24, corporate profit margins would have to remain stable. That is a stretch, particularly when factoring in the US’s continued failure to contain Covid-19, the growing regulatory backlash against Silicon Valley and uncertainty surrounding the outcome of the November Presidential election. Mindful of these risks, we remain neutral US stocks. With an increase in consumer spending a feature of the recovery taking hold in parts of the world, we are attracted to consumer staples stocks.  To maintain a defensive tilt in our equity allocation, we have reduced our weighting in financials to underweight. Although banks’ bad debt provisions resulting from pandemic-induced lockdowns have been largely in line with expectations, they remain acutely vulnerable to any setback to the smooth reopening of economies. Moreover, dividend payments are unlikely to recover for the foreseeable future. Regulators across the world– including the ECB, the Fed and the UK’s Prudential Regulatory Authority – have moved aggressively to either cap bank dividend payments or temporarily suspend them. This greatly reduces the investment appeal of financial stocks. As always, if you would like more information please contact your adviser within the Just Service Global network. For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

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Current market outlook - and what to do with savings plans and investment portfolios

The team at Just Service Global hope all clients using our service are staying safe and taking due care in such difficult times.

Source: Just Service The global COVID-19 outbreak has sent global stock markets into chaos. With massive drops followed by huge rebounds day after day, volatility has become an ever-present force that investors have to manage. Anyone who follows the news knows that the world’s economies are going through a prolonged spell of volatility. It’s natural at these times for some investors to have concerns. Now, more than ever, it is imperative that investors avoid making decisions motivated by fear. The importance of staying invested cannot be overstated, even as markets continue to plunge.

Staying the course

Experienced investors know that investing is a long-term commitment. Historically, investors who have been able and willing to ride out the periods of decline in the markets have seen their investments recover. Investing with a long-term outlook and with long-term goals is the best way to reduce the impact of stock market fluctuations and see out periods of volatility. The chart below shows that short-term volatility is a characteristic of investing, but over the long term the trend is a rising one.

Note in particular, regular savings plans are fantastic vehicles for taking advantage of “Dollar Cost Averaging” (if not sure - its worth Googling).   As prices crash, you continue to buy at lower prices.  Once prices rise again (which they always do), then you can see significant gains.  Monthly payments are the best for this.  If you are positioned in line with your risk profile, this will work.  As you draw nearer to the time you need the money, your profile will become more cautious and so the fund mix should start to reflect that, protecting gains.  

The chart below demonstrates the performance of different asset classes following a few historical crises

Past performance is not a guide to the future. The value of units may fall as well as rise. Source: Quilter Investors as at 31 December 2019. Based on an initial investment of £10,000 over the period 31 December 1996 to 31 December 2019. Gross return in pounds sterling. Global Corporate Bonds is represented by the ICE BofAML Global Corporate index; Global equity by the MSCI World Index; and Cash by the ICE BofAML British Pound Overnight Deposit Offered Rate. The information provided is for illustrative purposes only and doesn’t represent the past performance of any particular investment. It is not possible to invest directly into an index. Plotting your course - deciding on your viewpoint While we recognize that clients are trying to comprehend the impact of these events and asking where to turn, it’s well worth remembering the famous quote from the legendary investor Warren Buffet: “Be fearful when others are greedy and greedy when others are fearful.”

From the diagram above, we can conclude we are currently in Phase 2- and possibly at, or close to Phase 3 of a four-stage process of decline and recovery.   JP Morgan has commented that historic episodes of market downturn due to health scares didn’t lead to extended periods of equity selling and, in fact, became buying opportunities within weeks, with local indices rising 23% on average in the three months after the global peak in the health scare. If you have any questions on the above or about your financial products see make contact with your adviser. We are here to help support you in these challenging times. Regards Phil Neilson Managing Director

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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Where will the market go in 2020: let's look into the US

Source: Ryan Cooper

A view held by many in the mainstream media is the stock market is a general barometer of economic health. If it's going up, then things are assumed to be going well — and if it falls a lot, then it's time to worry. Thus conservatives in the US have been celebrating the astounding stock rally of the Trump era, which has been more than twice as strong as the average since 1928 for presidents at this point in their term. To be sure, a stock market crash can have serious negative repercussions. But the current booming market is also evidence of a deeply sick economy — one geared to funnel money to the very tippy-top of the wealth distribution, and which is seriously vulnerable to another devastating financial crisis.

The first thing to know about stocks is that a huge fraction of the population owns no stock at all, and only the rich own them in significant quantities. A Gallup poll found that 55 percent of people own any stock — a majority, but most of them own only small amounts. If we break the population into 10 groups (or deciles) based on how much stock they own, we find that the top decile accounts for 86.8 percent of all stocks. The next decile owns 9.5 percent, the third 2.8 percent, and the rest little or nothing. Adding to this, the fraction of GDP going to labour costs has fallen sharply since the 1980s, while the fraction going to corporate profits has increased sharply, and the share of income and wealth taken up by the very rich has skyrocketed.

The broader economy, including all these public corporations, is still based on mass production and consumption. It follows that as inequality grows, the economy will sag and slow, because rich people disproportionately save their income rather than spend it, usually by buying financial assets like stocks. So as the financial markets are swamped by a tidal wave of profits, those stocks, in turn, become ever-more divorced from the health of the underlying corporate enterprise. The result is a marked tendency towards financial bubbles, as oceans of money slosh here and there looking for safe returns that can't exist because the mass public has little disposable income which would justify fresh investment in real enterprises. This is exactly the background that made the Great Depression of the 1930s and the Great Recession after 2008 so bad. The economy was fundamentally unsound, and it took only the kick of a financial panic to knock it over. 

The stock market is surging under Trump largely because of the massive tax cuts for corporations and the rich that Republicans passed in 2017. Contrary to their promises, corporations spent most of the windfall not on investment, but on dividends and share buybacks which fuelled gains in the market. Wages, meanwhile, are up slightly, but not anywhere nearly as much as stocks. Overall growth is also weak. This means the stock boom is built on sand — especially given how the Trump administration has dismantled much of the post-2008 financial regulation. I hope the top decile is enjoying themselves, because the good times can't last forever.

As always talk to your adviser within the Just Service network if you would like information or otherwise review your savings, investment or pension plans. For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

All content provided is for informational purposes only. Just Service makes no representations as to the accuracy or completeness of any information contained or found by following any link. Just Service will not be liable for any errors or omissions in this information nor the availability of it. Just Service will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

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