01st February 2021

Good morning,

Equities fell last week, posting their worst return since October as companies such as Gamestop and the ‘short squeeze’ captured the headlines. Indeed, Gamestop is now (or was as of 10:30 this morning!) the biggest stock in the Russell 2000. The mechanics of this scenario have been well documented elsewhere but it is worth noting that this story could well fade as quickly as it emerged.

Earnings results and the direction of monetary policy (more on both below) are more fundamentally influential on the economy, and therefore equity returns, as we look to the rest of 2021. Amidst the furore of the retail trading volatility, Apple reported its highest ever net profit as revenue hit $111bn. Net profit rose 29% versus a consensus expectation of 6.3% as all five product categories saw double digit growth. This is of course only one company, but is a positive signal as we continue to invest in companies with robust balance sheets, good business models, and strong growth prospects.

We remain towards the higher end of equity ranges across our multi-asset funds as negative real yields support relative value argument for risk assets. However, volatility could remain heightened as investors look to policymakers to overcome stimulus and vaccine rollout challenges.

Weekly Investment News
Equities fell the most in three months as the U.S. market posted its worst day since October last Wednesday. Whilst other matters grabbed the headlines the continued impasse in Washington regarding further stimulus, coupled with the lingering issues with vaccine rollouts, also dampened the mood for investors. Economic data was relatively light last week and came in largely as expected and suggested a continued (albeit slowing) post-COVID recovery. Real GDP growth in the U.S. came in at an annualised rate of 4% in Q4 and there is a growing realisation that the labour market is unlikely to recover until vaccines are rolled out and lockdown restrictions are eased.

After three weeks of earnings, earnings-per-share is coming in at over 10% ahead of analysts’ expectations led by financials, tech and materials. Earnings and sales are essentially back to where they were a year ago as the proportion of companies exceeding expectations remains strong.

The Federal Reserve followed the ECB last week by reiterating its deliberate, dovish stance. The Fed left policy unchanged and will continue with its asset purchase programmes, with Fed Chair Powell reinforcing the uncertain outlook and emphasising a dovish approach in his post meeting comments.

Interestingly, South Korea saw its full 2020 calendar year growth come in at -1.4%, better than expectations from one of the first countries to be hit hard by the pandemic, and subsequently come out the other side. There is a slew of economic data and earnings to come this week which should help focus the minds of investors. Eurozone GDP is likely to come in lower than the above as the economic fortunes of the single currency bloc become increasingly tied with the efficacy of its vaccine rollouts

Leave a Reply