WeekWatch -‘US stocks ended May higher last week, ‘ June 2021
US stocks ended May higher last week, reaching their fourth consecutive month of gains. The S&P 500 Index of large US companies rose to within touching distance of record levels, although the more technology-heavy Nasdaq index actually fell for the month.
The different in performance between the share prices of technology businesses and so-called ‘value’ stocks has been a theme in markets since the successful rollout of vaccines began last year. While the winners of the pandemic saw their revenues and share prices grow throughout lockdowns, companies worse affected by the pandemic saw their share prices fall. In recent months this trend has reversed, and last week saw that reversal continue.
“We suspect that much of the pattern this month can be explained by optimism about the ‘big tech’ firms, and the IT sector more generally, falling back from a high level. The pandemic has arguably benefited many firms in this camp, at least in relative terms, given that it forced a lot of activity to migrate online, and led to a switch in consumption patterns away from services and towards goods, particularly electronics,” wrote Oliver Allen, Markets Economist at Capital Economics.
He added: “As the further progress of vaccination drives in many advanced economies has meant a return to normality is now in sight, some optimism about tech may now be ebbing. We generally think that the rotation in stock markets has further to go over the next few years, as many of the factors which have worked in its favour since late last year resume.” Towards the end of May there was also a renewal of interest in riskier, speculative investments such as the ‘meme stocks’ favoured by amateur traders. The share prices of some of these companies rose last week. One example was the struggling US cinema chain AMC Theatres, which saw its share price rise quickly last week.
Meanwhile, markets continued their focus on inflation last week. As economies around the world reopen, one of the most urgent questions on investors’ minds is whether the higher inflation that has crept back into world economies is here to stay. Some data releases earlier in May showed that it is already taking place. In the UK, for example, the Consumer Prices Index was 1.5% for the year to April, which has prompted the Bank of England to publicly mull over increasing interest rates. However, last week, markets appeared more confident that central banks around the world won’t rush to raise rates.
“With President Biden and the US pursuing a $1 trillion-plus spending plan, and central banks happy to let economies run hot, the spectre of inflation is rearing its head. There has been a rush to commodities and banks, a suggestion that we are returning to the ‘Roaring 20s’ when global growth was boosted by post-war sentiment. But what is not known is if this is temporary, skewed by unusual pandemic demand trends, or supply disruption causing short-term price spikes,” wrote Richard Colwell of Columbia Threadneedle, manager of the St. James’s Place Strategic Managed fund.
“It seems, for now, the market narrative is one where inflation will be transitory – but for how long?” added Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.
Low interest rates, plus other forms of support or stimulus from central banks, have kept asset prices afloat since the pandemic took hold last year. Most central banks have signalled to markets that they will tighten up their policies if they see a sustained period of high inflation. In the meantime, fund managers are closely watching the data for clues about the future. Inflation is just one of a number of possibilities they consider when investing your funds, to ensure that they are well positioned for the future. Of course, the best way to deal with uncertainty is to invest for the long term with a well-diversified portfolio. If your funds are invested in a wide range of assets, then their performance won’t be overly reliant on any one outcome.
BlueBay and Columbia Threadneedle are fund managers for St. James’s Place.
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The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
Members of the St. James’s Place Partnership in the UK represent St. James’s Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority.
St. James’s Place Wealth Management plc Registered Office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom. Registered in England Number 4113955.
