Spotlight on Boohoo
Boohoo has been a very interesting business to follow over the past few weeks, due to the emergence of a scandal involving low wages and a lack of socially distanced working conditions in their Leicester factory. The allegations emerged over summer but there has been prolonged impacts. Their shares were one of the most traded last week and staggeringly, in just one day their share price plummeted by nearly 20%.
Despite this, it was announced recently that they have support from their biggest shareholder, Jupiter, who hope to come to Boohoo’s rescue by supporting the notion of a new management to shake up the business. Interestingly, Boohoo could be one of the best companies to invest in at the minute provided their new management strategy takes off. Forecasters expect there to be big returns on the horizon for investors. It is definitely a company to keep an eye on over the coming weeks.
Japan Trade Deal Set to Raise the FTSE 100
Boris Johnson’s recent trade deal success with Japan, boosts confidence amongst investors and is expected to raise the FTSE 100. This deal provides some much needed certainty in times of uncertainty, especially after the huge hit to the FTSE after the pandemic outbreak in March. As it stands, the deal is not as good as the one Japan made with the EU last year, but it is still significant as is the first deal the UK has struck since the Brexit vote, highlighting that life after Brexit is not all doom and gloom. It is unlikely the deal will keep the FTSE up for any significant amount of time, but it may provide needed stability, in this very volatile period.
Banks Boost the FTSE 100
The end of October was not so positive for the FTSE 100 with a closing value of 5,577.27. This is due to tighter restrictions sweeping the UK bringing big cities into tier 3 hindering economic activity and the upcoming national lockdown is unwelcome news.
Despite all this, banks have performed well. In particular, Barclays have helped to stabilise the FTSE 100 with their share price increasing by 6.96%. This is down to their higher than expected profits for the third quarter. Their well performing investment banking sector is a big reason for this, with operations increasing by 24% from January to September this year.
Luckily for shareholders, it seems profits from their investment banking success have overshadowed the 12% drop in profits from their high street banking sector.
However, a sustained boost is unlikely with the recent announcement of a second lockdown. This will undoubtedly bring in even more unemployment with businesses being forced to shut for the second time this year. With the new lockdown lasting for at least four weeks, it doesn’t seem like markets will be looking up any time soon.
S&P 500 Drops Over Threat of Second Lockdown
On Monday (26th) morning the S&P 500 fell by 2% nearly reaching 3,300, due to the continual surge in coronavirus cases in the US. Airlines and hotel companies were worst hit, being some of the most sensitive to the effects of coronavirus. Tech giants including Apple and Amazon fell on average 3% which took its toll on the S&P500 as a whole. This could set the trend for a tricky month with the US election also making the market more volatile. It is expected next week that the market will have its biggest drop in a month.
Biden Vs Trump - Can the S&P 500 Tell Us?
With the presidential election looming, can looking at the S&P 500 help us predict who will win? Evidence suggests it can. Since 1936 it has correctly predicted the outcome 87% of the time. The diagram below shows which party has won, based on the average market value in the months before the election. It seems that if the market is higher in the three months leading up to the election than it was at the start of the year, then the incumbent party will probably win. If not, then the opposition party will win. This year it is not so easy to tell, with the unexpected pandemic causing a huge economic shock, affecting markets globally, it makes any predictions much more unreliable.
(Source: Markets Business Insider)
What would it mean for the market if there is a Democrat win? With Joe Biden ahead in the polls, a win for him will bring higher taxes on capital gains for the highest earners, causing big investors to book their profits. A Biden victory also promises a much needed economic stimulus package, causing investors to swap any capital flow into more risky assets. It will be worth checking this market regularly in the days before and after the election.
The Nikkei 225 has slipped 2.3% this week, which is its biggest loss in three months. Kyocera Corp lead the way down 9.95%. Airlines also suffered with ANA dropping by 4.08%.
Optimistically however, Panasonic was up 4.94% after agreeing to develop a new battery for electric car giant Tesla. Yet despite some positive news, it remains that the new tighter global restrictions as a result of coronavirus, along with the threat of an inconclusive result in The US presidential election, is having its toll in Japan.
A 30 day low has hit the DAX last week as software giant SAP reported their fear of a not so bright future, causing their share price to fall by 17% on Monday (28th). The DAX fell by 350 points with SAP accounting for 200 of these points. It is no wonder, as SAP is the largest company on the DAX. By Wednesday, the market had dropped by a further 4.2% and there is no doubt that coronavirus has a part to play in this. It seems investors sold theses shares in return for lower risk investments in currency.
The pattern across different markets is pretty similar this week. The uncertainty of The US election combined with more coronavirus restrictions, is casting shadows over the prosperity of global markets, it seems this week has not been the best for investors. How long the markets will take a hit for is unknown, we will just have to wait and see.