WeekWatch -‘US and European stocks continued climbing last week’ June 2021
US and European stocks continued climbing last week, after Wall Street responded well to a US jobs report. The world’s biggest economy created 560,000 jobs in May. The Nasdaq Composite, a technology-heavy index of US companies, rose 1.5% on Friday after the news.
The jobs rise was a jump from April’s numbers but lower than the consensus estimate. This helped to allay fears that the economy is growing too quickly – it might seem counterintuitive that markets responded well to a report showing employment is growing slower than expected. That’s because it’s likely to inform how policymakers will behave over the coming months.
Central banks around the world have supported asset prices through the pandemic with low interest rates and other forms of support. Most of them are now signalling to markets that they will tighten up their policies (or at least start preparing to) if they see a sustained period of high inflation. If the data show that economies are beginning to overheat as lockdowns are lifted, central bankers will have little choice but to reverse their policies – which will help deal with rising inflation, but is likely to have a negative effect on asset prices.
“Looking forward, debate among policymakers is slowly shifting towards how fast stimulus measures can be withdrawn as economies reopen and then to how different the post-Covid economy will be. Everyone, including central bankers, is watching the data for direction,” wrote Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.
Fund managers are closely watching the data for clues about the future, poring over reports such as May’s US payroll release, plus remarks from central bank officials, to predict the state of play. There are already plenty of data points indicating that inflation has picked up over the past few months, with commodity prices growing as the world economy continues recovering. Inflation is just one of a range of possibilities that fund managers consider when investing your funds, to ensure that they keep meeting their objectives in the future. Alongside the economic backdrop, they continually weigh up the health of the companies they invest in, their growth prospects, plus business and political trends.
As investors, the best way to deal with uncertainty is to invest for the long term with a well-balanced range of investments. If your funds are invested in a wide range of assets, then their performance won’t be overly reliant on any one outcome.
Dowding added: “We take the view that growth and employment data in the US will remain solid and inflation will continue to surprise to the upside. We believe US rates will move higher in response, with a high probability that this will be disruptive to fixed income in general – and probably also to wider risk assets.”
European stocks also rose last week, with the STOXX Europe 600 Index reaching a record high. UK stocks closed the week relatively flat, although airline stocks took a hit after the government suddenly announced that holidaymakers could no longer travel to Portugal without isolating on their return.
“The UK remains a rich hunting ground. It has rallied a long way in some areas, but we feel there is much further to go – not just because ‘value’ stocks have perked up or inflation might occur,” wrote Richard Colwell of Columbia Threadneedle, manager of the St. James’s Place Strategic Managed fund.
Investors need to stay vigilant amid the uncertainty, notes Mark Dowding. Although vaccine rollout programmes mean that the pandemic is now on the back foot, investors cannot become complacent: “With summer having arrived and markets in a sleepy holding mode for now, there’s a warning for anyone falling asleep in the sun: when things hot up, it’s easy to get burnt.”
BlueBay and Columbia Threadneedle are fund managers for St. James’s Place.
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