A moment of quiet
- Treasury Secretary Janet Yellen expanded on new proposals made by President Biden last week for changes to corporation tax laws. Changes include increasing the corporate tax rate to 28% from 21%, imposing a new minimum tax on global profits, and cracking down on companies that try to move profits offshore. These would bring in an estimated $700bn of tax revenue over the next ten years.
- Federal Reserve policymakers were united in the view that the US recovery is far from complete, according to minutes from the Federal Open Market Committee released this week. Fed Chairman Jerome Powell said on Thursday that policymakers would only react if inflation expectations started “moving persistently and materially” above tolerable levels, wording which provides plenty of scope to delay action even if inflation does begin to rise.
- After three months in lockdown, the pub and restaurant industry has seen a surge in bookings with many locations reporting as high as 5,000 booking requests for tables between now and mid-May. As the number of vaccinations administered in the UK approaches 38 million (with over 6 million of these second doses) Health Secretary Matt Hancock has announced that adults under 30 will be vaccinated by the end of July. This is a welcome relief after panics of a vaccine shortage between March and April.
It has been a strong week for equities as further dovishness from the Federal Reserve helped bolster market sentiment. Investors were relatively unfazed by Fed Chairman Jerome Powell’s further reminders that the pandemic is far from over, or by surprisingly high applications for US state unemployment insurance. UK stock markets performed strongly again, remaining ahead of the US and Europe year-to-date as they play catch up after lagging in 2020.
Equity markets continue to move from strength to strength against a backdrop of economies getting closer to reopening and the promise of continued support from central banks. Whilst a sell-off in government bonds earlier in the month caused some volatility, a long-term history of their behaviour in recovery phases of the business cycle demonstrates that there is significant precedent for this movement. In fact, using history as a gage implies scope for this dynamic to continue to play out.
The threat of inflation which markets seem to be grappling with is a long-term risk for now – and will remain so whilst inflation remains well below its 2% target, enabling central bankers to sit back and continue to soothe investors with promises of sustained monetary support. Indeed, whilst macroeconomic variables remain comfortably below their longer-term averages, the business cycle is still positive for equities.
With few changes to economic fundamentals or corporate news flow, we are taking the time to review our holdings and ensure portfolios are positioned appropriately. As long-term investors looking to compound wealth, often the best course of action is to remain patient and do nothing. We are spending the time continuing to identify great business which have long-term earnings potential and hence the scope to return these earnings to investors.
Quote of the Week
“Mr Robson faced a 24-hour wait in storage.”
They say that travel broadens the mind and fills the gap, but the story of a man who mailed himself from Australia to the UK in the 1960s makes you question how much space there was to fill in the first place. In many ways, Brian Robson, now 76, was a trailblazer. In the days of air travel that saw you welcomed aboard with a glass of your chosen poison, a packet of Lucky Strike and ample leg room, he was already experiencing 21st century air travel – minus the duty free. Brian spent five days in the freight crate before realising he had been rerouted to Los Angeles. His memoir, The Crate Escape, is published below:
It was very dark and deeply uncomfortable but I saved a few bob. The End.