WeekWatch – ‘Donald Trump and Joe Biden debate publicly for the final time’ October 2020
Donald Trump and Joe Biden debated publicly for the final time last week, in a session that was
more restrained than their first meeting. Viewers were impressed by the performance of both
contenders, according to analysis company FiveThirtyEight, which also found that the final debate
didn’t have much of an impact on how favourably people viewed either candidate. Americans who
haven’t already voted will go to the polls in a little over a week.
Just as important for investors is the hoped-for stimulus deal that has so far failed to get off the
ground. There were some reports of progress last week, but by Friday the two parties had resumed
finger-pointing. However, many investors believe that the deal is likely to pass after the election
regardless of who wins, given that Democrats and Republicans agree on the need for more support.
Investors should remember to focus on the long-term view. Beyond the headlines, there’s plenty of
historical data showing that annual US stock market returns are generally positive during
presidential election years, and that returns are broadly similar during the terms of both parties.
Meanwhile, Brexit trade talks have entered the final straight. Talks resumed in London last week,
having passed the 15 October deadline set by Boris Johnson. Press reports suggest that the two
sides are targeting an agreement in November.
If it seems like political events are heavily influencing markets at the moment, that’s because they
are. Events such as the US election, Brexit trade talks, and the relationship between the US and China
have combined with the impact of COVID-19 to cause high levels of uncertainty. This is evidenced
by the fact that the third-quarter earnings season has garnered less attention than it usually would,
suggests Chris Ralph, Chief Global Strategist at St. James’s Place.
“Geopolitics has had greater influence on markets over recent years than at any time during my
career,” he notes.
Still, there were some interesting third-quarter results last week. On Friday, European equities edged
higher after some better-than-expected results from banks like Barclays and Nordea. But elsewhere,
many companies are showing the strain, especially in sectors like hospitality and travel, which have
been hit hard by COVID-19.
Investors can probably expect more of this divergence as the year draws to a close in the challenging
environment of the pandemic, says Mark Holman of TwentyFour Asset Management, co-managers
of the St. James’s Place Strategic Income fund.
WeekWatch
26 October2020
He expects that investors in corporate bonds will have the chance to add new names to their
portfolios as companies turn to the market to meet their borrowing needs.
“Along with more frequent issuers, especially the banks and insurers, we would expect more names
with less resilient credit stories to try to access the market, as for this latter group the market has
only recently opened up. For bond investors, some of these might represent opportunities to add
some pro-cyclicality to portfolios, whereas others should come with a strong health warning,” he
says.
“Unlike the past six months, where nearly all new deals performed well in the secondary market,
from here on that is far from guaranteed. Expect winners and losers.”
Finally, early last week, the United States Department of Justice (DOJ) filed an antitrust lawsuit
against Google, accusing it of suppressing its competition unfairly. The company is a “monopoly
gatekeeper for the internet”, say lawyers for the DOJ, who are trying to force the technology giant to
change.
Given how dominant Google is in internet search and digital advertising, there’s been plenty of
speculation that such a move was in the works. But what does it mean for investors who own its
parent company, Alphabet?
“While these threats need to be monitored, it’s unlikely that regulators will permanently reduce
Google’s competitiveness in search or digital advertising,” argues Hamish Douglass of Magellan,
manager of the St. James’s Place International Equity fund, which owns Alphabet. “Alphabet’s
strong presence in a wide range of products and services [such as artificial intelligence or drone
delivery] give it a strong competitive advantage.”
He adds that the fact that the its core product, Google, has become a verb like ‘hoover’ or
‘photoshop’, is evidence of how widespread and essential it is.
“Alphabet’s growth rates are likely to fall over time. But any company that owns a household verb
doesn’t need much to go right for it to deliver bumper returns for its investors for many years.”
TwentyFour, Magellan and Schroderes are fund managers for St. James’s Place.
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