Brian’s Brainstorm
Stock Market Divergences
Since the start of this year the UK stock market has fallen by nearly 18%, while over the same period an index of US listed stocks has risen by over 11%. Does this reflect the relative capabilities of the two administrations? Granted the UK government’s response to COVID-19 has been in parts haphazard, incompetent and incoherent; while a seamless Brexit transition seems unlikely. However, events on the other side of the Atlantic are not exactly tranquil. The US is enduring a high COVID-19 death toll, insurrection in some cities and a looming Presidential election next month which could be contested way beyond polling day.
So, we have incompetence and uncertainly in both the UK and US, yet the performance of the respective stock markets has diverged significantly. The reason is quite simply that FTSE 100 and the S&P 500 are indices of companies involved in radically different areas of economic activity. The FTSE 100 index is an index of international companies that have chosen to list on the London Stock Exchange. At the start of this year 25% of the index comprised companies in the energy and materials sectors, which includes mining; but only 1% of the index comprised companies in the information technology sector. In the US by contrast only 7% of the S&P 500 index involved energy and materials but the IT sector was 23% of the index. Even within sectors there was a contrast. In the UK, the financial companies were dominated by high street banks like HSBC, Barclays and Lloyds; while in the US financials are increasingly dominated by payment processors like VISA, MasterCard and PayPal.
In short the FTSE 100 represents the old economy of energy giants, miners and high street banks, while the US stock market is dominated by the new world of online retail, digital advertising and cloud computing. The COVID 19 pandemic has served to accelerate this digital transformation that was already underway. These forces are far more influential for stock market movements than the merits of politicians and their governments.
Staff Matters
- Following on from Conçerva’s latest board meeting the decision was made to postpone the return to the office for the vast majority of the team in the face of rising infection rates and changes to government advice.
- This will be kept under review and should there be any significant developments we will ensure that you are informed. In the meantime, the team continue to work from home and we would like to take this opportunity to thank them for their continuing efforts in the face of the ongoing disruption.
- However, the new normal can’t stop the exam successes of two of the team. Liam and Martyn have both passed their latest module and are now one exam away from reaching Chartered status. Congratulations gentlemen and good luck with the final step.
Statistical Information
| Last Month | This Month | Change | |
|---|---|---|---|
| CPI | 0.2% | 0.5% | 0.3% |
| RPI | 0.5% | 1.1% | 0.6% |
| August 2020 | September 2020 | Change | |
|---|---|---|---|
| Base Rate | 0.10% | 0.10% | N/A |