The last month has seen considerable market activity resulting from significant news. First, we have had the results of the US presidential election. Joe Biden has won, but not quite with the clean sweep that many had expected. Indeed, the Democrats failed to gain control of Congress and the Senate remains in the hands of the Republicans. This is significant as it will hinder the Biden administration. There were plans for considerably increased spending and taxation which will now have to sit on the side-lines. This is not bad news for the stock market: corporation taxes are unlikely to climb which should prove to be positive for earnings going forward. Additionally, Biden should be more predictable and less erratic than his predecessor. A more predictable and certain path is almost always good news for business and in turn the stock market.
Secondly, we have received very positive news on the arrival of a vaccine to combat Covid-19 meaning that there is light at the end of the tunnel for this dreadful pandemic. That is not to say that the next few weeks and months will not be challenging and infection rates seem to be increasing as winter unfolds. However, there is now some certainty that the end is in sight. Unsurprisingly, markets have jumped as a consequence and some market trends have reversed.
Global indices have been led higher by the UK market which has been a long-term underperformer, particularly since the outbreak of the pandemic. Therefore, it is perhaps not surprising that it has rebounded most strongly with the arrival of a vaccine. The UK market was recently trading lower than 5,800 which was a level that we first saw in 1998.
Turning to the outlook for markets, it will be important to keep a close eye on infection rates over the winter months, particularly in the US where new cases of Covid-19 are reaching worrying levels and hospitals are beginning to fill up as a consequence. A further fiscal stimulus package might be required to help businesses endure these difficult few months, particularly if they are forced to impose lockdowns.
Secondly, Brexit negotiations are in their concluding stages. These of course will have very important repercussions for the long-term prospects for the UK. Hopefully, politicians will reach a positive agreement which will allow significant levels of trade between the UK and Europe. However, the prospects of a hard Brexit or a poor trade settlement have not gone away. Nonetheless, any greater clarity on this situation will allow us to plan for the coming years.