America (finally) decides

Equities fell in October as investors came to terms with tighter lockdown restrictions, but hopes for a new round of US stimulus under President-elect Joe Biden have buoyed markets, and chief investment officer Julian Chillingworth reckons we should take heart.

Biden badge on election mail envelope

Joseph Robinette Biden Jr, a centrist, establishment Democrat, has been declared the 46th President of the United States of America.  However, the result won’t be official until the Electoral College ratifies the state results in early December. By convention, Donald Trump was expected to concede that he had lost; a necessary step in ensuring a smooth transfer of power. Yet Mr Trump didn’t – and hasn’t. Instead, he’s waiting for the results of recounts in several states and has filed a flurry of motions in courts across the land to upend the result. While most of the swing state races were extremely tight, it’s unlikely that recounts will find the tens of thousands of missing votes the President needs to overturn Mr Biden’s victory. And many of the sitting President’s previous court petitions have been dismissed out of hand.

Democrats are expected to retain the House of Representatives, albeit with a smaller majority, yet control of the Senate remains in the balance. Georgia’s two senate seats are going to a run-off in early January. If the Democrats are to take control of the upper chamber, they need to win both. Even if Congress remains split, we believe Mr Biden should be able to push through much-needed stimulus and ease global trade tensions.

During the month of October, prior to the election, the US market was buoyed by continued hopes for economic recovery, with third-quarter growth in GDP coming in at 7.4%. But despite the bounce, GDP will still take time to recover to its pre-COVID levels and the outlook for growth in fourth quarter is far more muted. Any further recovery in the economy will be will handicapped by the lack of a new fiscal package and rising virus numbers this side of the new year and new Congress and President.

Here we go again

European and US equities fell in October as investors came to terms with tighter lockdown restrictions, and European economies face the prospect of a second down leg in economic activity. UK Prime Minister Boris Johnson’s decision to dispense with the tier system after just a few short weeks and completely lock down England for at least a month (joining Scotland and Wales, which had implemented strict measures well before) means the UK is seemingly back where it was six months ago. It’s been a demoralising blow.

But take heart. The fact that this is old hat for us now means that the economic damage should be much lessened this time around. That, and the fact that the government has carved out exemptions for several industries. The British economy plummeted 26% in the six weeks of lockdown from mid-March to the end of April. So, if the next four weeks of lockdown have exactly the same effect, we’re looking at a 17.5% slump over the month. However, this time round construction, manufacturing, education and childcare remain open. And other sectors have become more adept at working from home. Because of this, we’re assuming our economy will contract by 10-12.5% over the November lockdown.

Economic data in the UK has been mixed over the month, while the second wave of COVID-19 (and, in some cases, third wave) continued to roll through communities all round the world. Company results announced on both sides of the Atlantic showed investors had gotten a little ahead of themselves on the strength of the recovery even before this latest wave of infection really got going. ‘Defensive’ and ‘growth’ businesses – those that are less reliant on improvements in the overall economy to increase their sales and boost earnings – performed well, in the main. Meanwhile, those that need an economic upswing to churn out more money (‘cyclicals’ or ‘value’) broadly disappointed.

And then there was Brexit. As the US election dragged on, the deadline for agreement between the EU and UK has skipped closer. Two weeks of talks so far have failed to yield a breakthrough, according to news reports. The two sides begin their final round of talks this week. Apparently, progress has been made in many areas, yet the same old issues are holding up the discussions: the level playing field for business, whether the UK’s sovereignty can be diluted to provide a way to enforce those rules, and fishing access. Both sides have said they need a minimum of six weeks to ratify any deal, which would mean that mid-November is the deadline.

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Subscribe to the In the KNOW blog email