Markets Advance on Recovery Expectations
Market indices posted positive returns over the week, with US and UK equities advancing close to 1-year highs, shrugging off fresh covid concerns.
In equity markets, US indices reached new all-time highs on Wednesday, as inflation concerns abated while economic expectations continue to improve. In the indices table, we can see that the S&P 500 and Nasdaq were two of the strongest performers, with information technology and financials leading this week’s gains. UK mid-caps also had a strong week, with the sweet spot between high growth opportunities and firm resilience remaining attractive to investors. Asian markets have struggled over the week on the back of pandemic and regulation concerns, with Japan declaring a Covid emergency and the possibility of a fan-free Olympics this summer. Chinese equities, on the other hand, have struggled amidst the state’s crackdown on technology companies, which is having adverse effects on foreign investments.
A number of macroeconomic risks have affected the majority of asset classes over the week. Investors have increasingly focused on the emerging Delta covid variant in the past 48 hours, and the risk averse reaction of investors has led to a decline in the yield on 10-year treasuries. After a period of strong performance, markets were susceptible to some profit taking, and with the Fed increasingly mulling over the timetable for tapering their asset purchases, we have seen negative sentiment leading markets lower over the trading session today. It is key to note that we see this as being temporary, and nothing to worry about.
As we observed last week, non-equities have again benefitted as some investors take risk off the table, with gilts performing the strongest over the week. UK index linked gilts have done particularly well as, although the chances of elevated inflationary pressures in the US have lowered somewhat, the inflationary environment in the UK is still expected to remain elevated as a result of the expected strength of the UK economy. Gilts have benefited on the back of Delta variant concerns.
Over the week, the OBI portfolios have achieved positive returns, pushing the portfolio returns closer to their annualised return targets. European, UK, and quality-focused investments have performed strongly this week, while our domestically-focused US and Asian exposure has erased some of the gains that we witnessed in last week’s market commentary. This is also why the lower risk portfolios have performed similarly to the higher risk portfolios as, although equities usually outperform at this stage of the cycle, the increasingly risk-averse behaviour of investors over the past seven days have supported non-equity assets across the board.
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.
Moving forward, despite elevated short term market volatility during today’s trading session, we remain positive on performance expectations over the next quarter. The economic outlook remains strong, and as the UK has demonstrated, despite rising cases, a highly vaccinated population greatly reduces hospitalisation rates. As we frequently note, short-term volatility will remain throughout this year, however we continue to expect financial markets to end the year higher than they are now, and the OBI portfolios are positioned to benefit from the continued recovery in global activity.
Key Events We Are Watching This Week:
- Friday 9th: UK GDP data.
- Wednesday 14th: UK Inflation Rate.
This Day in History
On this day, in 1947, there were a number of reports of a mysterious flying disc landing in Roswell, New Mexico. At first, reports were denied by the U.S. military, then a report appeared which stated they had been lucky enough to obtain one of the discs which was later denied. The debate whether an alien spacecraft actually landed in Roswell, New Mexico, still continues today with many believing it was a government cover up.
Thank you for reading, have a great week!
Jason, Gina & Ben
