Market Update – 23rd August

Deepest August

The Bank Holiday and September are in sight. August has proved, thus far, to have been largely uneventful. Markets have been very quiet; there is a tangible feeling of holidays being crammed into the last warm rays of summer sunshine before a canter back to the virtual desks and a reappraisal of what the autumn may bring.

There is so much that is still guesswork, educated or not. Take the so-called hybrid working model. How will we all like splitting our time between home and the workplace? There is more and more hot air coming from ‘the banks’ (which means the American banks) suggesting that senior management wants staff back at their desks. This is presumably to justify the ego-enhancing mega-buildings that characterized the rise of the mega-banks over the past three decades. Where does Canary Wharf feature in a hybrid working model? Financial Services, and especially Independent Advice, is a long-standing demonstration that working from home, and using the office as a support hub (especially the convenience of the confidential waste disposal) is a perfectly healthy model. And what will happen if traders and fund managers are forced back into commuting to offices the size of a minor county? Like everyone, we wait and watch.

Then, what of our consumerist urge to splash the cash on a bit of fun this summer? Or of the need to extend the conservatory? How will we all feel once the evenings draw in and the rain turns cold? Will we still go out shopping at the weekends? Will we keep buying new sets of comfy cushions on-line? Or will we go back into our shells and prudently save for different times ahead? Will there be a ski-ing season this winter? Or holidays in the spring? Like everyone, we watch and wait.

We can make our guesses. But there are wider implications, no matter how the autumn and winter play out. Long-term successful businesses need motivated and happy staff. There is no one-size-fits-all answer to the hybrid/office/work-from-home question. Each business will need to work out what suits it best. Some will get this right and thrive, others will get it wrong and feel the pain. As investors, this has become an important issue to understand.

Our best guess on spending is that this is going to be a long autumn and winter. But a retrenchment into the respective shells should pave the way for another bout of sunny optimism next spring. Yet again, it is a good time for a business to have a strong balance sheet. The fewer debts one has to pay when the top line is in question the better. That is a statement of the exceedingly obvious, but there is little to be gained by dicing with indebted businesses at the moment.

We could prognosticate this week about tapering, Chinese regulations and the vaccine-resistance of the delta variant. But it is almost the Bank Holiday and you would learn nothing new we if did. Innovation has its own holiday next week and we look forward to seeing everyone again in September.

Jim Wood-Smith – CIO Private Clients & Head of Research

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