Fortnightly update, 30th October 2020
As October draws to a close, we look at why the US NASDAQ has gained strength, and consider how our money can be used to “build back better.”
Earlier this week, the S&P 500, one of the widest and most prominent US market measures, sat above its February highs1. It was buoyed by news of positive vaccine progressions and greater stimulus, or perhaps numb to the familiar combination of political uncertainty and rising cases. It is clear in hindsight that we were truly not yet out of the woods. The week began with sharp declines across major indices in Europe and the US2, with hopes of a stimulus package prior to the US election dissipating, and harsh social restrictions sweeping across Europe amid surging virus cases3.
Among developed major indices, one stands head and shoulders above them all. The US NASDAQ gained circa 35% over the past year. In fierce contrast, the UK FTSE 100 is down circa 24%4. To understand why, there is a host of key variables, one of which is the composition of the stock indices. The companies that make up the FTSE 100 are very different to those that are included in the NASDAQ. Let’s go back to 2019, when Royal Dutch Shell (RDS) was the largest company by market capitalisation in the FSTE 100, with the likes of HSBC and BP in the top 5. Share prices for RDS and BP have more than halved in the last year due to flagging demand and oil price declines5. HSBC shares are down over 45%, as the banking sector contends with low interest rates and increasing bad loans6. Now, when compared to the NASDAQ US tech giants7, such as Apple, Amazon and Alphabet, which have thrived as major suppliers in the growing digital economy, the large difference becomes more understandable.
Right now, is earnings season, a period when companies release quarterly financial reports. As you might expect, prices can be volatile around these periods. As the third quarter earnings season unravels, the swell of companies reporting ‘positive’ earnings surprises may seem absurd in the current climate, however it is important to remember that these are judged relative to analyst expectations8. This makes it possible to simultaneously have steep declines in profitability, and earnings that beat analyst expectations.
The 24th to 30th of October is Good Money Week. The event is co-ordinated by the UK Sustainable Investment and Finance Association (UKSIF) and is intended to help those who are interested in sustainable and ethical options for banking, pensions, savings and investments9. The theme for this year is a green and fair recovery after the pandemic to promote people and planet alongside economic recovery as we “build back better”10.
As members of UKSIF, Holden & Partners are keen to support this goal and are experts in the provision of advice on sustainable finance. We can help your money become greener, cleaner and kinder. So, if you’re inspired by the narrative of Good Money Week, please get in touch.
October is Black History Month in the UK. However, it is important to note that the end of the month does not mark the end of efforts to learn more about the contributions made by black people and communities to Britain. The Black History Month website provides information on our shared history, opinions on the latest issues and news of upcoming events. One such event is the next Black Pound Day on the 7th of November. Black Pound Day encourages consumers to purchase from black-owned businesses on the first Saturday of each month, and is a solution-based approach to support the growth of the UK’s black-owned businesses, ventures and economy11.
At Holden & Partners, we believe that being more thoughtful about our money, be that our savings and investments or shopping mindfully by supporting local businesses and diverse communities with our spending habits, means our finances can be used to effect positive change.
2 https://www.forexlive.com/technical-analysis/!/major-european-indices-closed-down-sharply-20201026
3 https://globalnews.ca/news/7414113/coronavirus-europe-curfews/
5 https://www.energyvoice.com/otherenergy/267508/bp-shares-25-year-low-articleisfree/
7 https://www.bbc.co.uk/news/business-53996191
9 https://www.goodmoneyweek.com/
10 https://esgclarity.com/good-money-week-an-opportunity-to-build-back-better/
11 https://blackpoundday.uk/what-is-black-pound-day/
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