Post holiday blues

With summer fading into memory, a long uncertain winter of social distancing lies ahead. It’s easy to feel gloomy, but as chief investment officer Julian Chillingworth argues, we should try not to buy into the doom.

Airplane in blue sky

Not too much has changed since August, except that summer is coming to a close. At the risk of sounding like a pop psychologist, stock markets are more than simply cold-blooded calculations of companies’ future profits. They are also barometers of a society’s mood. When most of us are feeling upbeat, stock markets tend to follow suit; when people are feeling gloomy, the market stumbles along.

As financial markets remain tethered to our shared consciousness, the terminal month of summer, September, tends to be the worst month for stock market returns. October is also a particularly volatile time, boasting several major crashes like the Great Crash of 1929 and the lightning strike of 1987. The post-holiday blues afflicts us all, and so it afflicts our social constructs.

Global equity markets lost momentum and suffered their deepest correction since the March tumble with the major US indices, the powerhouse of the global economy, falling after five straight months of gains. There are concerns over the durability of our global economic recovery, plus political uncertainties and worsening COVID news. In Europe, it was good news in Germany as the announcement of its extended job-subsidy scheme led to outperformance, whereas France and Spain underperformed as signs of their second waves hit headlines. Even that age-old safe haven gold had a bad month.

The outlook for unemployment will be key to the economic recovery, and what happens in the markets from here. In the US it is still trending downwards from the 14.7% peak of April. At roughly 8%, it is now broadly the same as in the EU, where the jobless rate is rising. The jobless rate is rising in the UK too, but from a very low level. These figures will be crucial to how fast and how high economies can bounce back because of their effects on consumer confidence and spending.

It’s impossible to determine how this will all shake out. There’s simply too much in flux. Statistics have been warped by the lockdown period and the tremendous shift in what people are buying and how. Fewer companies than ever are offering forward guidance today – a reasonable decision in our view, given the difficulties just mentioned. All of this can be bewildering and not a little scary. But the speed of these changes is actually one of our greatest strengths. For all the flaws of our time, we are one of the most dynamic societies that has ever lived. Our technology, our culture, our institutions, all of them have given us the flexibility needed to completely recode how we live and work in the space of months. It hasn’t been perfect, but it worked. And despite appearances, we continue to adapt rapidly every day.

This note started by saying nothing had really changed since August. And that’s true. Everyone was aware that COVID-19 wasn’t going away anytime soon. If investors were worried about these risks, they should have already factored them into share prices months ago. But that’s not the way we work. When the sun is shining and the waves lap sand just beyond our paperback, we tend to shrug these things off. But when the weather shortens the horizon and the chill creeps in, we start to focus on the negatives. We’re all human at the end of the day.

But try not to buy into the doom too much. Try to keep perspective, remembering the good as well as being mindful of the bad. Here in the UK, the infection rate has surged in recent weeks, leading the government to consider yet more nationwide restrictions and localised lockdowns. Yet hospitalisations and deaths haven’t followed suit. Hopefully the rapid progress in treating the disease means they never will, although we won’t know for sure until a few more weeks have passed. Meanwhile, most schools and businesses have reopened. This is of course a double-edged sword: more commerce and classes mean more chances for infection. Yet we have to get our kids back in school otherwise we risk scarring their development and mental health for years. And we must learn how to run our economy safely in this environment to retain our quality of life. Almost a third of Brits think life will take more than a year to get back to how it was before the pandemic (some think it will never happen), and they are likely not wrong. The loss of skills from a year or more out of work would be debilitating for the people left unemployed and the country as well.

For our part, we’re steeled for a bumpy road. The unfettered conditions for roaring economic growth are the same as for a large resurgence in the pandemic. To restrain the latter and partially enable the former a compromise appears to have been struck. This won’t mean cataclysm, but it won’t be an easy bounce back either.

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