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15 March 2021

US Markets Lead Global Rally

After a 10% correction in the Nasdaq over the last two weeks, the US led a rally across global markets as core inflation rates remained subdued and President Joe Biden signed the US$1.9tn stimulus package into law. The package will distribute payments of up to US$1,400 straight into the bank accounts of individuals earning less than US$80,000 annually and couples less than US$160,000. Some portion of the stimulus checks is expected to flow into the stock market with a new wave of retail investors dipping their toes in the market (and others diving straight in) over the last year.
 
A survey from Deutsche Bank found that half of respondents between 25- and 34-years old plan to spend 50% of their stimulus package to purchase shares, while the 18-24 and 35-54-year-old age groups planned to invest 40% and 37% respectively. Based on the survey, this would mean that roughly US$150bn could find its way into US equities. However, it must be considered that the overall sample was only provided by 430 investors and the majority of those receiving stimulus checks do not have trading accounts. Nonetheless, capital is expected to flow into the market in some form while the rest of the stimulus will provide much needed aid to the US economy, which is no doubt a positive sign for US equities.
 
US inflation data also rose less than expected in February; the core consumer price index (CPI) increased 0.1% from the month before and 1.3% from the previous year. The data somewhat calmed the inflation nerves seen over the past few weeks with Tech stocks returning as the strongest performers and the rotation into value seemingly placed on pause. As a result, the Nasdaq made a 6% recovery from the low of 12330 on 8th March, while the US S&P 500 rose 3.4%.
 
In the UK, the FTSE 100 posted a performance of +1.61% . The figure looks quite underwhelming when compared to the main US indices and, considering its underperformance against them over the last decade, it is clear a post-Brexit review of UK market structure is needed. When looking at the sector weightings of the FTSE 100, Information Technology (IT) only makes up 1.37% of the index, with Financials, Consumer Staples and Materials the top three sectors. In contrast, IT makes up around 28% of the US S&P500 while Health Care and Consumer Discretionary are the next weighted. This, along with other factors regarding regulation – limits on initial public offerings, for example – have hindered the UK’s ability to compete as a hub for financial innovation. To put this into context, the US tech sector received around US$116bn inflows from venture capitalists in 2019 and the UK just US$13.2bn. The government does seem to be finally recognising the problem, however. In an interview last week, Economic Secretary to the Treasury John Glen said the government was not going to stop after overhauling rules covering initial public offerings and fintech firms. It is also preparing to consult businesses on “detailed proposals for wider reform to the capital markets”. We could, therefore, see much-needed change to the structure of the UK financial markets pushed forward in the coming months, especially as the EU is yet to decide on the UK’s access to the bloc and the realisation that our competitiveness as a global hub for financial services is on the line.
 
Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
US Markets Lead Global Rally
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