Feet on the ground
- England’s chief medical officer, Prof Chris Whitty, warned that Covid hospitalisations were doubling everythree weeks and could hit “scary numbers” in future. Prof Whitty said the pandemic still had a “long way torun in the UK”. This comes as the UK recorded almost 50,000 new cases on Thursday – the highest daily number since January.
- The House of Lords economic affairs committee has questioned the need for continued quantitative easing by the Bank of England. The chair of the committee, Lord Michael Forsyth of Drumlean, said that the bank “has become addicted” to quantitative easing, using it as the “answer to all the country’s economic problems”.
- On Tuesday, the S&P 500 closed at an all time high for the 40th time this year. This was an encouraging start as we enter into an earnings season weighed by optimism based on the fact that, as economies reopen after the pandemic, corporate earnings will rebound smartly.
It has been a very strong start to the year and investors should be pleased with the performance they have enjoyed but equally should not get carried away and must remember to think with a long term mindset as a setback in the second half of the year is at least possible. The MSCI World (a global basket of capitalisation-weighted stocks) is yet to have any sort of meaningful correction this year with pullbacks limited to 6%. While we cannot predict the future, we can assess the probability distribution, and markets rarely go up in a straight line. Margin data from FINRA, the main regulatory body in theUS, shows an elevated use of leverage by equity investors. Nothing seems to be able to shake this equity market which shrugged off the continued rise in inflation readings, but we should resist the urge to become complacent.
The consensus right now is to be bullish on equities,a position we agree with, however when the crowdall pile in to the same boat, risk can increase withonly a small wave required to upend the vessel. Aswe move into earnings season we see it as prudentto take stock of where prices have got to and build asmall element of dry powder should corporate profitsfail in the short term to match up to recent pricemoves. To that end, this week we made a fewadjustments to portfolios to ensure that we controlthe risk of disappointment and can capitalise on anyshort term set backs.
Quote of the Week
After a teacher’s class claimed that scoring penalties was easy, the class of 10-year olds were challenged to a penalty shootout by their teacher. Of course the teacher showed no mercy, saving 34 out of 35 penalties taken. Proving two points, penalties are hard and that English school children should learn how to take penalties from nursery school onwards.
At times, looking to the future is the only thing to be done, at others, it is worth taking a moment to reflect on events. England’s loss in the Euro 2020 final was disappointing to all concerned, aside from our Welsh and Scottish colleagues, but the journey to the final was truly special.