WeekWatch – ‘US stocks reached new highs at the end of the four-day trading week’ April 2021
US stocks reached new highs at the end of the four-day trading week, with technology stocks enjoying a resurgence.
They were also supported by an announcement from President Joe Biden, who unveiled a $2 trillion infrastructure plan last week. Although broad-ranging in its scope, the plan focuses on things such as broadband, scientific research, and electric vehicles, which are expected to be a boost for the technology sector.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell towards the end of the week. This number, which has been rising steadily so far this year, has a knock-on effect on the prices of lots of financial assets. Its increase so far in 2021 appears to have been weighing on the values of some technology stocks. So, last week’s decrease was positive for many technology shares.
Even so, many investors are expecting it to continue rising this year, in what may be a sign of a more muted outlook for the fast-growing technology companies that have generated such strong returns in the recent past. This is arguably a good thing considering the high levels of speculative excitement that have characterised the investing landscape in the recent past.
“The FOMO market is over; it’s a more broad-based opportunity set now and a more ‘normal’ investing environment. Investors will be able to bide their time, waiting for openings,” suggested Johanna Kyrklund, Group Chief Investment Officer at Schroders and manager of the St. James’s Place Managed Growth fund.
The ‘fear of missing out’ (or ‘FOMO’) explains the psychology behind the wild price movements in some stocks that are popular among amateur online traders. It was a feature of the GameStop saga in January and February this year – which saw the share price of a struggling US gaming retailer shoot upwards as investors piled into its shares in expectation of a rapid rise. Some of them were right, but others were left with losses when the share price subsequently declined.
With an economic recovery on the horizon, it’s possible that markets are entering a calmer phase, suggested Kyrklund.
“In today’s markets a more boring approach – favouring diversification and judiciousness over more racy assets – may be what’s required,” she added.
One of the biggest stories last week in financial markets was the implosion of Archegos Capital Management – an investment house whose higher-risk strategies involved borrowing large sums to buy financial instruments related to publicly-traded companies.
The news has already impacted other financial services businesses, with several investment banks reporting expected losses, or declines in their share prices. There were fears that the news could lead to wider disruption in the market, but so far most of the fallout appears to be limited to companies that had dealings with Archegos.
“There is no need to be concerned that this will lead to broader contagion. In fact, in discussions with policymakers over recent days, there is a thought that this may serve to tighten up regulation and risk management practices in areas of weakness,” wrote Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.
While the broader fallout might be limited on this occasion, that doesn’t mean there are no lessons for investors, he added.
“As Archegos reminds us, greed can often end in tears and investing should not be confused with the pursuit of chasing short-term speculative gains,” added Dowding.
Even though the longer-term picture is bright, in the near term there was news last week that showed COVID-19 is still a disruptive force. In particular, several European countries have re-enacted lockdown measures in order to curb the spread of a new wave of cases.
France’s President Macron announced a four-week national lockdown on Wednesday last week. Similarly, Italian lockdown measures will continue to the end of April. Due to restrictions, Pope Francis gave his Easter message inside St. Peter’s Basilica to a small gathering, rather than to large crowds in the square outside.
BlueBay and Schroders are fund managers for St. James’s Place.
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