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Market Commentary

September 2021

by Stuart Carswell

US stock markets soared in August and most US indices closed the month at an all-time high. The strength of the US market has well exceeded market expectations and the S&P 500 index has now doubled from the Covid-19 pandemic nadir, hitting a low in March last year at 2,237 and now standing at around 4,500.

One of the reasons for this relates to two of its biggest sectors being information technology, which is currently 28% of the S&P 500, and healthcare, currently 13.4% of the S&P 500. These are both sectors whose prospects have been materially improved by the pandemic, creating a tailwind to overall levels of corporate earnings and equity indices.

It wasn’t just the US equity market that was strong in August, other global stock markets performed well during the month and closer to home the FTSE 250, the mid-cap index which includes the companies just below the FTSE 100, also performed very strongly. Some of this strong performance has been driven by a flurry of Merger and Acquisition activity in the UK.

A lot of attention is put on the FTSE 100 with it being the most well-known stock market index in the UK. The FTSE 100 is one of the few major stock markets still trading below its all-time high. The index is currently around 10% below the highest closing value of 7,877.45, which was reached on 22nd May 2018.

However, is the FTSE 100 a fair reflection on the UK economy and UK investments? Perhaps not. It is worth considering the FTSE 250 for a better reflection of the UK economy as it has a greater percentage of its earnings derived from within the UK and is trading at an all-time high.

Economic data has been strong in recent months with it bouncing from lows. However, it is difficult to maintain the same strength going forward because of the recovery already witnessed. To highlight this the latest University of Michigan’s US Consumer Sentiment index slumped to a reading of 70.2, down sharply from July’s 81.2 reading. One of the reasons for this fall is due to the increasing number of Covid-19 cases from the Delta variant.

 


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