Last Week in the City: White House race and Covid spike drive markets

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 30 October.

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  1. Garry White

A resurgence in Covid-19 infections in the US and Europe combined with worries over the outcome of the US presidential election to create a ‘risk-off’ environment that resulted in falling equity markets.

Should Democrat Joe Biden win the White House, corporate and capital gains taxes are likely to rise. Adding to the uncertainty, incumbent Donald Trump has said he may formally challenge the election results if he loses. There was also some weakness in technology stock such as Apple following a slew of earnings reports.

The UK blue-chip index, which has a heavy weighting in oil and banking shares, hit a six-month low. The FTSE 100 and FTSE 250 both fell by more than 5% over the week by mid-session on Friday.

As worries grow over the resurgence of Covid-19 money printing is likely to continue. Expensive sectors – and their equities – may get more expensive still. We explain why in this week's article, At the crossroads in a lop-sided world.

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A question from a client: What should I be asking you?
Louis Coke, an investment manager based in Guildford, looks at the questions he is asked by some of his sharpest clients in his article, A question from a client: What should I be asking? Louis also looks at ways to involve older children in managing family wealth in the article, Bringing children into the family wealth: an Investment Manager’s observations.

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Covid-19

A rise in Covid-19 infections in the US, Europe and elsewhere hit market sentiment this week. However, UK foreign minister Dominic Raab said on Friday that national lockdown in England was not inevitable and may be avoided. He said that a localised approach could and urged everyone to adhere to the rules in their area. This followed concerns over the resurgence of Covid-19 infections and the economic impact of anti-virus measures.

GlaxoSmithKline and France’s Sanofi will supply 200 million doses of their Covid-19 vaccine candidate, which is in the first stages of testing, to a global inoculation scheme backed by the World Health Organization (WHO). Called Covax, the organisation has already signed distribution agreements with AstraZeneca and Novavax. Meanwhile, GlaxoSmithKline said it expected 2020 earnings to be at the lower end of forecasts because Covid-19 has disrupted vaccinations for other diseases.

British Airways-owner IAG used its quarterly results statement to call on governments to adopt pre-departure Covid-19 testing to allow travel during a second wave of infections that is forcing governments to lock down Europe once again. Management said it continued to cut costs and capacity.

Starbucks said its two largest markets, the US and China, were rebounding from the pandemic more quickly than expected at its third-quarter results.

One beneficiary of movement restrictions was model railway maker Hornby, which reported its sales surged by a third in the six months to September, as more people took up hobbies in lockdown. The company, which also makes Corgi cars and Scalextric racing tracks, said it had benefitted from families spending more time at home.

Economics

The US economy emerged quickly from the depths of the Covid-19 crisis with official figures show the economy grew at a record 33% annual rate over the three months to 30 September. Nevertheless, output remained 2.9% lower compared with the same period last year.

The US unemployment rate has fallen from the 14.7% high recorded in April, dropping to 7.9% last month, as businesses reopened, employers recalled workers and shoppers returned to restaurants and stores – helped by government aid.

We have just witnessed what we could call the ‘Japanification’ of world finance as central banks attempt to counteract the economic hit from measures introduced to stop Covid-19. We look at how this all could end in this week's article, Debts, deficits and stimulus.

Listen to our podcast on the outlook for sterling.

US Presidential election

On 3 November, America votes to elect its next President. Democrat Joe Biden is leading the polls, but “shy” Trump voters may not be so reticent about expressing their views in the polling booth. The big danger for markets is a contested election, a move Donald Trump has threatened if he loses. If the result is contested, the dispute could drag on for weeks – and trigger a major risk-off episode in markets.

The environment may be the biggest winner of the US presidential election, as the vote could flip US policy on its head if Mr Biden wins. Low-carbon energy – and investors in the technology that makes it possible – may be nearing their time in the sun. Garry White argues that you better be ready for the ‘green revolution’.

Under a potential President Joe Biden, a more collaborative relationship will emerge with the United Nations, European Union, World Health Organisation, International Monetary Fund and other bodies President Trump has found unhelpful. He will take Covid-19 more seriously – and favour stricter lockdowns and protective measures. He will tilt Middle Eastern policy back to doing deals with Iran at some cost to his relationship with Saudi Arabia. We look at the new orthodoxy that may emerge in the US.

Listen to our podcast on the implications of the US election on markets. All previous recordings can be found on the Charles Stanley radio page.

Technology

Technology shares fell at the end of the week after US heavyweights came under pressure following quarterly reports.

Apple shares fell after reported a 16% decline in iPhone sales – and failed to offer investors any guidance for the quarter ahead. However, the company’s delayed new iPhone will have 5G capabilities that is likely to become a growth market.

Amazon shares dipped slightly despite a record third quarter, with sales beating Wall Street estimates significantly. However, increased spending on delivery infrastructure is likely to continue over years, which means profit growth may trail sales growth. Shares of Alphabet soared 10% in extended trading on Thursday after the Google parent company posted quarterly results that beat Wall Street expectations.

Shares in Twitter dropped sharply after the social media company reported user growth that fell short of analysts’ expectations.

Facebook reported third-quarter results that exceeded analyst expectations, supporting shares in the social media giant.

Facebook's Mark Zuckerberg, Twitter's Jack Dorsey and Google's Sundar Pichai were summoned before the US Senate after both Democrats and Republicans agreed to call them in for questioning over “Section 230”. This states that online companies cannot be sued over what their users post online, or the decisions they make over what to leave up and take down. The chief executives argued that the law needed to dictate how to moderate content as Senators questioned them on censorship and the spread of misinformation.

South Korea’s Samsung Electronics reported record revenues in its third-quarter after its mobile and chip businesses were boosted by US sanctions against its Chinese rival Huawei. The strong revenues were fuelled by a 50% jump in smartphone sales, while profits from microchips jumped 82%.

Technological change is accelerating at an unprecedented rate. The world that this will create will be so utterly different from today that it is almost impossible to imagine how your life is going to be. Garry White looks at the break-neck speed changes that are coming your way in this week's article, The technology shaping the way you’ll live tomorrow.

Energy

Global energy prices fell as rising Covid-19 cases in Europe and the US heightened concerns over future fuel consumption as oil inventories in the US rose. Brent crude prices futures prices fell more than 10% over the week, to trade at about $37.60.

The green revolution is starting to shape our lives and is shaking markets – especially oil companies – in anticipation of a change in the way the world is powered. What changes are we likely to see? We take a look in this week's article, The green revolution and its fight with mighty carbon.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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