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Market overview – Alan McIntosh, Chief Investment Strategist
The attempt by an army of private investors to “take on the big guys” seems to have fizzled out, with the last purchasers of GameStop on Friday 29th January now nursing losses of over 70%. So much for democratising investment. There are a number of things to take note of here however. The influence of social media on in(forming) opinion and behaviour remains undimmed. Early traders of GameStop and AMC moved on to silver, prompting many others to follow. Is this just a Covid lockdown phenomenon of some people with too much cash and too much time on their hands? How many people were curious enough to download the Reddit App just to see what was going on? Frenzied trading also caused problems for trading platform Robinhood, which had to post more cash with clearing houses in case trades were not completed. Hence the restrictions on dealing which caused a subsequent outcry. This may feel like a one-off event, but we shouldn’t be so sure.
Global markets recovered their poise last week however, with US shares punching to fresh all-time highs. Mainstream stocks, technology shares and small companies all hit record levels. The power of liquidity continues to drive up markets, but there are some changes of sector leadership. Tech companies continue to deliver strong earnings growth, so the big sell-off that some anticipated has not materialised. However, more cyclically sensitive companies, hard hit by Covid restrictions, are bouncing back fast as optimism grows about vaccination rollout. Sure there may be issues about the speed of vaccinations and concerns over efficacy in dealing with new variants of coronavirus, but the direction of travel is a positive one. Central banks and governments around the world seem determined to continue to provide support while economies get back on their feet again. Until official policy changes in a meaningful way, stock markets should continue to reflect this optimism.