As part of our goal to give our readers up to date news on Market Commentary, and in addition to our more detailed commentary circulated, we have also decided to provide some regular short Market Commentary – hence Market Commentary Shorts.
This month’s market commentary looks back at September and some of the key considerations.
Technology profit-taking hits US equities
After a sustained rally, US equities ran out of steam in September, with the S&P 500 Index falling by almost 4%. A major feature of the hiatus was technology stocks, which have been the driving force behind the positive index returns this year. The major technology companies each lost around 10% as investors took profits, and the broader market sagged, as investors contemplated the upcoming US election on 3rd November.
Investors seek safety in government bonds
All sections of the global fixed income market returned gains in Sterling terms, as investors adopted a more cautious stance. The poor news flow from Brexit talks, the uncertainty of a US election in November, and the reality of a second wave of Covid-19 becoming evident, meant that money coming out of equities was ploughed into bonds. Government bonds, performed particularly well, in contrast to previous bond market rallies in recent times, which have tended to be dominated by the riskier high yield corporates.
Brexit outlook under threat from Internal Market Bill
News that the UK government intends to introduce legislation in connection with its control over trade within the UK, in contravention of its Brexit agreement with the EU, was received negatively by legal commentators and the media. The Bill potentially puts the UK in breach of its earlier Withdrawal Agreement, and could result in legal action from the EU. The news did not appear to hurt the standing of the Prime Minister, but equity and currency markets were unsettled by the development. First reading of the Bill was on 30th September, with the second reading yet to be scheduled.
Currencies volatile on Brexit and US election
The pound was noticeably weak during the month, as traders saw the fallout from the Internal Market Bill as potentially setting back the chances of a free trade deal with the EU before the end of the year. This was exacerbated by a stronger dollar, which saw strong gains as the presidential election campaign got properly underway. The dollar remains more than 3% down over the year however, and the consensus expectation from currency traders seems to be that the recent strength will not last much beyond the election on 3rd November.
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Chris SalacinskiDirector & Financial Planner