The summer months may have brought a glimmer of the old pre-pandemic times, but the renewed restrictions of late have dragged us back into our current (hopefully temporary) reality. Big uncertainties around the virus remain, with cases currently increasing – and that’s before we head into the dreaded flu season, when hospitals will likely begin filling up faster again. However, hope remains focused around a vaccine, which will allow the world economy and corporate earnings to finally fully recover. At least one of the seven vaccines currently undergoing Phase III trials will likely prove successful – and the Oxford vaccine is still widely considered the front runner here. I would hope to see a substantial step change in market sentiment and valuations should a vaccine be approved soon – but for real positive impact we’ll most likely have to wait until the vaccinations themselves begin.
Meanwhile, other big events are looming: Brexit is back in the headlines, while the US election is fast approaching.
Brexit is back
Brexit reared its head recently with news that the UK government is contemplating a breach of the Withdrawal Agreement, prompting threats of EU legal action and tarnishing Britain’s international reputation. Although it’s been brought into question yet again, I do still believe a deal can be reached. And whatever the outcome, there will be differing effects on differing markets. UK equites should fare better if a deal is reached; conversely, while a no-deal Brexit would be bad for UK equities in the short term, the weaker pound would benefit overseas-focused portfolios.
The Trump effect
Turning to the US election: while a Biden win would be celebrated for numerous – countless – reasons, there could be a silver lining on the cloud of a second term of Trump: the stock market. Under Trump’s reign, markets enjoyed tax reforms and less regulation – two policies likely to be brought to an end under a Biden administration.
So what’s the story here? Well really, there’s two. On the one hand, investors should beware of the volatility ahead. We’re facing significant short-term uncertainty, with potentially long-term effects. But on the other hand, there is an upside story to every concern: a vaccine could recover market sentiment; a Brexit deal could boost UK equities; and a second term of Trump could be more favourable to equity markets.