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Investor uncertainty in Q4 is peaking – top things to watch this week

 

  • The Covid-19 narrative has once again gripped markets for the first time since March, as previously unexpected universal lockdowns are being imposed across Europe.
  • Investor uncertainty going into the final quarter of the year is peaking, exacerbated by nervousness around the US election, as previous economic and earnings forecasts for are bound to be revised down in light of the new lockdowns
  • While, in the UK, extension of the furlough scheme was welcomed, we believe that the economic help package could have been a lot more generous
  • At this point, however, all eyes are on December and January, when usually measured scientists appear confident that vaccines will be fully developed and approved for distribution.
  • The correction -up to now- has been brief, but inconclusive US elections, sub-par stimulus and vaccine delays could push prices down further.

“Last week saw the return of March-like volatility in financial markets, as renewed lockdowns in Europe and the UK weighed on sentiment. A month ago, the probability of country-wide lockdowns seemed remote, but since then, the number of new cases has risen exponentially which is why both Wall Street and High Street were caught off guard. While the market stabilised after Thursday, investor uncertainty going into the final quarter of the year is peaking, as previous economic and earnings forecasts are bound to be revised down. While, in the UK, extension of the furlough scheme was welcomed, economists note that the economic help package could have been a lot more generous.  Additionally, markets are holding their breath over the outcome of the US Presidential and Senate races, with portfolio managers especially nervous at the possibility of inconclusive results. At this point, however, all eyes are on December and January when usually measured scientists appear confident that vaccines will be fully developed and approved for distribution.

In this environment, long term investors are presented with a challenging task. On the one hand, they are encouraged to look beyond the shorter term distractions of US elections and a virus which will be, in all probability, eventually dealt with. On the other, they can neither ignore that nor yet fully analyse how these events will reshape the world and change long term projections for risk assets. This is a time when trust in the properties of diversified portfolios needs to be maintained as means of maintaining wealth through these tumultuous times.”

 

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