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.

Markets reflected the gloomy mood on Monday with shares falling and the pound weaker following the imposition of a tough new Christmas lockdown and closure of some UK ports.

The FTSE 100 fell around 2% on opening, before recovering and then falling again to sit around 2.5% lower at time of writing. The more domestic focused FTSE 250 was down 3.3%. Markets elsewhere shared the pain with the CAC 40 in France down 3.5%, the Dax in Germany down 3.7% and the Eurostoxx 50 down 3.6%. Please remember past performance is not a reliable indicator of future returns.

The pound had been falling since the announcement on Saturday night that around 18million people in the UK would be placed under an even stricter ‘Tier 4’ lockdown that effectively bans Christmas get togethers. Sterling has lost around 3 cents against the US dollar.

Those currency movements may have actually helped the UK’s largest companies, paring losses in the FTSE 100 in particular, because a weaker pound makes the revenues of companies earning in foreign currencies more attractive to foreign buyers.

The real damage can be seen in the performance of those companies most exposed to the new disruption. IAG, the parent company of British Airways, was down more than 11%, TUI, the travel firm, was down more than 6% and Carnival, the cruise company, was down more than 10%. UK banks, which tend to do best when signs of growth in the UK economy are strong, were down with Lloyds losing 5.5% and Barclays 3.7%.

The mood, then, has shifted to risk-off following a period when investors had been getting more positive about markets and the prospects of economic recovery in 2021. The detection of a new and potentially more transmissible strain of Covid-19 has harmed hopes that lockdown restrictions can be lifted and the timing, in the crucial trading week before Christmas, means the economic hit will be painful for many businesses.

The only good news this morning was the confirmation that Republicans and Democrats in the US have agreed a $900billion package to help Americans weather the economic costs of the pandemic. That, at least, resolves one question that had been hanging over markets.

Investors watching on would be best to tune out of the day-to-day developments of the news. The lesson of markets in the pandemic has been that it pays to stay invested and see through short-term noise. That paid off when the pandemic struck in February and there are good reasons to think it will pay off once more.

The emergence of several successful vaccines against Covid-19 means we now have a visible route out of the crisis, in a way we did not have earlier this year. That may place a floor under the falls we’re seeing today, which themselves only partially roll back the gains we have seen since the vaccine was confirmed.

Regular contributions into investments, whether in an ISA or pension, such as a SIPP, mean that you’ll take advantage of dips in the market to buy more assets for your money. If markets can recover, you’ll then be in a better position than if you had sold out.

2020 has been a difficult year and that looks to continue into 2021 as well. It requires, as always, a level head, a diversified portfolio and a long-term view. Helping you achieve those things is the aim of our Quarterly Investment Outlook, due in January. The Outlook rounds up our current thinking on markets and assets and this time will include the five fund picks of Tom Stevenson, our Investment Director, for the next year. As well as a written version of the Outlook, there’ll also be a webcast where Tom will answer your questions.

If you’d like to submit a question 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. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. 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.

Topics covered:

Volatility; UK; Shares

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