Discomfort of disappearing safety nets
The summer season has started in earnest and yet, unsurprisingly, this year everything feels different. Most
of us are relieved restrictions are easing, meaning we can go about our lives more like how we were used
to until a few months ago. While in lockdown, many may have reasonably expected that – in return for our
sacrifices – we would emerge into a post-COVID environment, with the virus no longer a threat, and with
Sadly, until a vaccine becomes available1, normality remains a fair way off. Instead, we must content
ourselves with a still-uncomfortably restricted new normal, without knowing for certain when it will end.
This discomfort is not confined to our personal lives, but equally affects the economy, the jobs market and
US election: Joe is no longer Biden his time
Americans head to the polls in just under four months, and as we edge ever closer to the election,
presumptive Democrat nominee Joe Biden’s lead over Donald Trump has grown steadily wider. According
to the latest figures from FiveThirtyEight, the former Vice President has the support of 50.3% of the US
public, while the current President is polling at just 41.2%. The somewhat arcane Electoral College system
means that lead is not insurmountable, but opinion polls in several key swing states have consistently placed
Biden ahead of his rival for some time. This has been reflected in betting markets’ implied probability of a
Trump victory (see chart below) – which hit a high of 60% at the end of March, but has steadily declined
since then, sinking to current lows of around 35%.
Sector rotation or just a timely recalibration?
Investment professionals have many different methods for slicing up the investment world. Typically, we
tend to group assets together in terms of region, asset class or sector. Looking at things sector by sector
is helpful for judging what to overweight and when, since different industries will react differently to
underlying economic conditions (for example, technology or ‘growth’ companies tend to do well early in
the economic cycle, and not as well later on), but breaking down the entire global economy by sectors can
be misleading. In our globalised world, industries’ progress across different regions is often correlated, but
nations’ diverging economic backdrops means this is not always the case.