These events could move markets in November 2020

Many shares have recovered since the March crash, but plenty could happen over the next month.

A number of key events occurring over the next few weeks will likely prove decisive for global stock markets which have lost momentum in recent weeks.

Recovery from the sharp sell-off caused by the pandemic outbreak in February/March has been spectacular for many stocks, especially tech companies and those able to adapt to the new circumstances. 

However, a lot of good news is now priced into many of them, while the flow of positive news and likelihood of significant catalysts emerging has slowed. It’s why the previously motoring US Nasdaq 100 technology index, with just days to go until the end of the month, is currently no higher than it was at the start of October. The widely-watched Dow Jones is down 0.6% and the broader S&P 500 index of US companies is up a modest 0.8%. Britain’s FTSE 100 is down 2.5%.

There’s a US election to contend with too. Republican president Donald Trump goes head-to-head with Democrat rival Joe Biden on 3 November, and it’s the challenger who leads the polls at the moment. 

A Democrat who would typically favour tax hikes and increased regulation might not appear a likely friend of financial markets. However, history tells us that Democrat administrations aren’t as negative for markets as one might expect. Biden is also tipped to introduce a series of stimulus measures aimed at propping up and repairing the faltering US economy.

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No-deal Brexit

It’s been over four years since Britain voted to leave the European Union, and still the exit part of Br-exit is yet to be resolved. And time is running out.

The transitional period before new rules come into force ends on 31 December, but, practically, the two sets of negotiators have even less time to strike an agreement and get it implemented in time.

Talks are ongoing, and “significant gaps” between the two side’s positions remain. However, there are reports that UK officials and the French and German leaders are closer to some kind of deal, minds perhaps sharpened by the billions of euros of lost trade in the event of a no-deal Brexit.

Covid cure

Despite everything else going on, Covid-19 remains the main driver of market direction and behaviour currently, and news is often mixed. 

Latest news from Oxford University and its commercial partner AstraZeneca (LSE:AZN) is that their vaccine produces an immune response in old and young alike. Fear has been that any cure might be less effective in the elderly population whose immunity has weakened with age. 

If proved, this is a significant breakthrough and raises hopes that a mass vaccination programme can repair both social and economic damage done by this coronavirus. AstraZeneca said it believes doses of the vaccine might be available for use before the end of the year. 

However, that sounds ambitious, and any significant rollout would take many months, if not years. And in the US, medical chief Dr Anthony Fauci has cautioned that the first round of vaccines will likely focus on preventing symptoms of the virus rather than blocking it altogether.

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Whatever the outcome of drug developments, we are still many months away from finding an effective cure that can be rolled out globally. Until then, especially during the winter months, it seems very much a matter of damage limitation for governments, economists and business leaders. 

Best time of year for shares

While a number of events in the month ahead could cause share prices to jump around, the six winter months between November and the end of April are, historically, the best time of year to be invested.

Data compiled for interactive investor by Stephen Eckett, mathematician and co-founder of UK Stock Market Almanac publisher Harriman House, shows that £100 invested in 1994, and held continuously for the past 25 years, would have grown to £206 (excluding dividends). However, if they had only invested in the market between 1 November and 30 April every year, that £100 would be worth £278. Conversely, if they had chosen to only invest over the summer months, they would have lost money; their original £100 would be worth just £68.

“This anomaly, sometimes called the Sell in May Effect, has been known about for a long time,” explains Mr Eckett. “The first mention of it was in the Financial Times in 1935; and one academic paper claimed to have found evidence of the effect in data from 1694. Another paper found that the effect could be seen in the share markets of 81 countries - so it is not limited to the UK.”

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A likely explanation for this anomaly is that far more money flows into the market over the winter months. Big players at financial institutions on Wall Street and the Square Mile return from their summer holidays and begin to put their strategies to work.

Then, when spring arrives, investors rush to maximise tax allowances by investing in tax wrappers like ISAs. After tax year-end, so-called ‘early birds’ use their ISA allowance as soon as the new tax year begins.

Of course, as we saw in February and March this year, it doesn’t always work like that. However, history is on our side, and investing in solid profitable companies, or into investments like funds and trusts, maximises the chance of success over the longer term.