Market Overview – 15/12/2020

Having been led to believe that Sunday was the deadline for talks between the UK and EU to either agree or disagree the terms of a Brexit trade deal, we now find that the deadline was merely to decide whether to continue talking or not. Optimists will say that there is evidence of movement on both sides, but it looks as if this could now run to Christmas or even beyond. The pound fell late last week as the prospect of an agreement faded, but rallied again on Monday as the dialogue continued. Shares of companies with a domestic focus, such as housebuilders, bore the brunt of any selling pressure. By contrast, prices of companies with substantial overseas sales benefited from the fall in the pound. This largely reversed on Monday.

Overseas markets were less volatile. The alarming increase in coronavirus cases in the US and now once again in Europe, has been countered by optimism about the hopefully speedy rollout of vaccines. Add to this the likelihood of even more fiscal and financial stimulus and markets are looking optimistically at 2021. The rotation into economically sensitive sectors which began a couple of months ago looks set to continue, given the pincer movement of more financial stimulus and vaccines. Economic recovery could be quite dramatic next year if all goes according to plan. Nothing ever does, however, so expect some bumps in the road along the way. Share prices have moved sharply higher since the lows of March. Further gains should be attainable as we enter 2021, but we need to be realistic about what is already in the price.