As we reach the halfway point in an extraordinary year and surpass the 100th day of working from home, I thought it would be useful to send you a letter with a few comments in advance of the quarterly valuations which should be with you soon.
The past quarter has seen a rapid recovery in markets from their March lows as the rate of new Covid-19 cases started to slow and countries began easing lockdown measures. The FTSE 100 recorded its best quarterly rise in a decade and the S&P 500 since 1998, reflected in your valuations. It seems investors are anticipating that the end of the pandemic is near, and that growth will return.
The reaction by governments and central banks worldwide has provided fuel to this rise with unprecedented levels of stimulus and support packages being rolled out to corporates and individuals to help mitigate the impact of the virus. This activity shows no sign of abating and it is likely such support will continue for some time yet.
Nonetheless, we are cognisant of the threat of “second waves”, especially as economies try to re-open: one need only look at the photos of Central London on “Super Saturday”. The impact of this on markets will be dependent on how governments react and whether local or national lockdowns will be accepted by the populations in question.
Looking forward to the coming quarter, while Covid-19 will remain centre stage, other areas to be mindful of include the rising tensions between the US and China, developments in Hong Kong, Brexit negotiations and, finally, the ramp-up of the US electoral campaign.
Overall, we continue to remain cautious in light of the ongoing uncertainty. It is likely that volatility will remain until greater clarity is attained regarding the speed of recovery or a roadmap (ie. vaccine) out of Covid-19. Therefore, our focus remains on high quality investments where earnings and profits retain some predictability, even if lockdowns are reinstated later this year.
We hope this provides you with a useful overview. As always, we remain available for conversations and meetings, albeit remotely. Please do get in contact.