OCM Commentaries

Market Commentary 4th February 2021

By February 4, 2021 No Comments

Investors Embrace an Improving 2021 Outlook

 

After a volatile period in markets amid fears of elevated valuations, depressed earnings expectations and activity restricting lockdown measures, risk assets found support over the week on an improving earnings outlook alongside mounting evidence of strong progress being made on the vaccination front. With earnings season now in full swing across the US and Europe, a significant proportion of firms have beaten their earnings expectations, whilst the apparent end of the retail trading short squeeze has returned market confidence somewhat. As the gap between share prices and company fundamentals narrows, investors continue to look through short-term volatility and towards a brightening medium-term outlook.

 

Bank of England Anticipates Economic Rebound

 

Following this month’s Monetary Policy Committee (MPC) meeting, the Bank of England adopted an optimistic tone on the outlook for the UK economy. Although the bank has lowered its full year outlook due to the ongoing national lockdown, Governor Andrew Bailey emphasised that the UK economy was headed for a rapid pickup, noting that the MPC’s central forecast assumes that Covid-related restrictions and health concerns will continue to weigh on activity in the near term, but that the vaccination programme will lead to those easing. The rebound will depend heavily on the success of the vaccination rollout and the ability to keep new strains under control, however at this stage the evidence is promising, leading expectations for a significant pickup in activity over the second half of the year.

 

In line with market expectations, policymakers left rates and bond purchase targets unchanged. In response to growing speculation over the potential for negative rates, Bailey noted that banks would need at least 6 months to prepare for any cuts below 0, and stopped short of committing to negative rates as a policy response. UK bond yields subsequently rose across the board, with the 10-year and 30-year rates climbing to the highest levels since March 2020 as investors focused on the central bank’s optimism over the vaccine rollout and the message that we are unlikely to see negative rates in the short term.

 

Vaccination Progress

 

Positive news flows regarding vaccine rollouts across the world have been a key driver for short-term optimism among investors over the week. Although there are stark differences in the trajectories forecasted among developed nations, the 6-month outlook for the US and UK is encouraging. With the two nations accounting for the highest and fifth highest Covid death tolls, the US and the UK have now administered 35 million and 10.5 million doses, respectively. In the US, this is the equivalent of 10.65 doses per 100 people, whilst the UK rate stands higher at 15.75 doses per 100 people, with the UK only trailing Israel and the UAE. The reactive response of securing vaccine doses and providing regulatory approval as soon as it was safe to do so has so far paid off, with both the UK and US expected to inoculate 75% of their respective populations in 2021, the percentage that is said to be required for heard immunity.

 

The inoculation progress is critical for both the health of a nation, as well as the economic recovery. Inoculation is said to be the key to allowing lockdown restrictions to be eased, economic activity to rise and unemployment to fall as employers rehire with greater clarity. It is expected that as the US and UK’s vaccine rollouts head towards the 75% figure, investors will begin to factor in the improving outlook into equity prices, which is expected to provide a broad boost to investor portfolios as both confidence and clarity returns.

Key Events We Are Watching This Week:

  • Friday: US Employment data for January
  • Tuesday: German Balance of Trade data for December

For anyone who wants further data to substantiate the position, please review the attached Market Update document.

Model Portfolios & Indices

Global stock markets continued to display high levels of volatility over the week as countries across the world battle with significant Covid-19 infection rates, mixed economic data and political uncertainty. The portfolios gained over the week as markets found support in improving earnings outlooks and strong vaccine rollout progress. Looking ahead, we are optimistic on the medium-term outlook from here, accepting further volatility in the near term, but confident in our positioning, with well diversified portfolios which have been designed to weather challenging market conditions.

It should be noted that we have initiated a quarterly rebalance on the portfolios today as part of our regular portfolio management process, therefore over the next few days you may see some movements in the assets on your online profile. This is completely normal, and the trades should settle within the next week or so.

 

 

Important Information

 

Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value.  You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio.  The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations.  Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges and trading spreads.  Unless stated, income is reinvested into the portfolio.  The information contained in in this document is for information purposes only.  It does not constitute advice or a recommendation or an offer or solicitation for investment.

 

This Day in History

 

On this day in 2004, Mark Zuckerberg launched Facebook from his Harvard dormitory room. As of December 2020, Facebook had 2.8 billion monthly active users and was the most downloaded mobile app if the 2010s globally.

 

We Need Your Vote!

 

We are delighted to also report that OCM Wealth Management has been shortlisted by an Independent Panel for an award in the following categories.

 

  1. Best Discretionary Wealth Manager
  2. Wealth Management Company of the Year

 

We need your help to win and would really appreciate your vote!

 

Please use the link below to place your vote. As an incentive to vote, you can also enter a free prize draw for a case of Moët & Chandon Champagne. Voting closes at 16:00 on 12th February 2021.

 

https://colwma.com/index.php/vote

 

Have a great week,

 

Jason & Gina