MARCH 2021 Market Update

— Mar 30, 2021


There was little in the way of significant events over the period other than a continuation of the rotation we wrote about last month, from the highly rated tech stocks into stocks that investors believe will benefit more when lockdowns around the world finally end.

The amateur stock speculators in America, or so called Reddit investors as they have become known, continue to produce wild swings in some individual stocks and cryptocurrencies (such as bitcoin among others).

It is of course only high prices and media news about spectacular gains that attract such investors. Given these characteristics usually only occur at the end of a bull market not the beginning, these investors are thus usually the last ones to the party and so these trends will need careful watching.

A continued frenzy of such excessive risk taking could signal the end of the US equity bull market, just as it did in 2000 with the technology boom and in 2007/8 with the US housing market.

However, there is a cycle to these things. A speculative boom that distorts prices will inevitably be followed by a pull back in prices. This punishes those reckless investors who have driven the volatility. They then disappear and take their destabilising behaviour with them. Markets return to more normal trading. This is a cathartic and necessary process and many signs would suggest it is overdue.

Finally, it is reassuring to see that the UK equity market is starting to gain traction and outperform in comparison with other international equity markets. We expect this to continue given the underweight position of overseas investors and the value available within UK stocks.