Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Following a dramatic day for European stocks yesterday, investors have struggled to make sense of the situation this morning. The FTSE 100 opened today down 0.4%, after closing at its lowest point in three weeks yesterday. Over the course of this morning, stocks swiftly rebounded, before steadily falling to sit around the 0.2% mark.
Nearly £30 million was wiped off Britain’s largest companies yesterday as panic over the new virus strain tore through the index. But the worst fears appear to have been abated to some degree. Most encouragingly, the French government is looking to end the ban on UK freight travelling across the Channel.
For the rest of Europe, it’s been more positive. France’s CAC 40 is up 0.85%, the German DAX 0.94% and the Eurostoxx50 0.92% at time of writing.
The pound has enjoyed even more of a whirlwind so far, initially falling this morning, then rising, then falling dramatically, before rising again just as dramatically. Much of the volatility here has been driven by Brexit news, with the EU reportedly rejecting Britain’s post-Brexit fishing deal.
If all of this is starting to feel unnervingly familiar, that’s because it is. This kind of volatility has been the defining characteristic of our home market this year. Bad news has inspired panic and sell-offs, only for markets to gradually make up their lost ground. Investors have learned the harsh way to regain their composure, look for opportunities, and keep an eye on the long term.
Today’s relative calm suggests that investors are getting used to this pattern. Even if they’re not enthused by the UK’s prospects, they’re at least no longer panicking.
There’s also evidence that they’ve kept an eye for a bargain. Airlines like Tui and IAG (the owner of British Airways) fared worst yesterday, with UK banks, which tend to suffer when the UK economy looks weak, close behind. But as prices fell, yesterday’s losers became today’s winners. IAG, Lloyds and Barclays are among today’s biggest risers on the FTSE 100.
That’s a pattern that has played out to a greater or lesser degree for much of this year. Unfortunately, it looks set to continue into 2021, with the Brexit situation still unclear and with this new COVID strain threatening to derail our efforts at containment, at least until a vaccine is widely distributed.
The sudden news of the virus mutation caught investors, who had previously been heading into the new year with high hopes, off guard. Investors have learned this year that with uncertainty comes volatility. Where the former goes, the latter will follow.
But they’ve also learned that it pays to stay invested and shut out the short-term noise. Those who withstood the temptation to sell in March and April were rewarded when markets rebounded, and there’s good reason to think something similar will happen this time.
It’s hard to remain optimistic amid all the doom and gloom, but the rollout of a vaccine is extremely good news, and it offers hope for those beleaguered sectors that have seen their fortunes worst affected this year. While the spectre of further restrictions and probable lockdowns obscure our vision, there is still a light at the end of the tunnel.
To help maintain a clear head through the confusion, Tom Stevenson will be looking ahead to the next quarter with his latest Investment Outlook, due on the 7th January. As ever, if you’d like to ask Tom a question in advance, you can do so here.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
A secret tax grab - and how to beat it with your pension
Will you be caught by the income tax band freeze?
What’s wobbling stock markets - and what to do about it?
This week, we’re digesting the market’s volatile movements in response to a h…