Putting your money where your mouth is has never been easier, as it’s now possible to gamble on basically anything, including election outcomes. However, many experts worry that gamifying politics could compromise the political system’s integrity and manipulate how issues and candidates are represented in the media.

What are prediction markets?

Prediction markets are like the stock market, but “instead of buying shares in companies, you buy shares in the outcomes of real-world events,” said Vox. The top prediction market apps today are Kalshi and Polymarket, and they “allow you to stake money on everything from the outcomes of elections and wars to the weather in your city tomorrow to who will win the Grammy for Album of the Year.” The apps essentially “transform any future scenario, regardless of how glib or disturbing, into a profitable wager,” said NPR.

Under the Biden administration, there was an “aggressive clampdown” on these prediction market apps to the point that Polymarket was “forced to cease its U.S. operations in 2022, and its chief executive had his home raided by the FBI last year,” said NPR. However, the prediction market is once again “taking flight with the full blessing” of the current White House.” The industry skyrocketed in 2025 and brought in $10 billion combined in bets on Kalshi and Polymarket in November.

The prediction market really took off once the federal ban on sports betting was struck down by the Supreme Court in 2018. Now, the gambling industry is “ingrained in U.S. sports culture with leagues, franchises, players and networks now partnering with betting organizations,” like the sportsbooks DraftKings and FanDuel, said CNN. Betting on professional and college sports also accounts for most of the bets placed on Kalshi.

On the flip side, DraftKings and FanDuel have both announced plans to launch their own prediction market services. “Sports have been a big driver thus far. We think sports are kind of a gateway,” said Devin Ryan, the director of financial-technology research at Citizens, to MarketWatch. “This will be about much more than just sports.”

How will they affect politics?

The biggest concern is the increasing influence of gambling on politics. President Donald Trump dropped the Biden administration campaign to outlaw betting on elections, and Kalshi and Polymarket have added Donald Trump Jr. as an adviser.

In 2024, a win in court against the Commodity Futures Trading Commission allowed Kalshi to “offer event contracts that allowed its users to wager money on the U.S. election,” said MarketWatch. “You have a vision in recent elections of a completely different type of engagement in politics,” said John Herrman, a tech columnist at New York Magazine, to Vox. “You have people who have basically removed themselves from the democratic process to engage instead in a market process — it turns everyone into a speculator rather than a voter.”

Also, just as you can no longer watch sports without ads from various sportsbooks, CNN and CNBC have both “announced partnerships with Kalshi that will incorporate the app’s voting markets on things like elections into the networks’ news coverage,” said NPR. Other networks could soon follow suit. “Entanglements with prediction markets might create other problems for journalists,” said The New Yorker. “Considering how significantly news coverage shapes betting odds, there’s ample opportunity for insider trading.”

Bets placed on certain candidates or issues might bring more interest or popularity and thus skew coverage or voter behavior. On top of that, gambling addiction is likely to become more prevalent. “We should probably prepare for a world where, much in the way that sports have become nearly impossible to follow or talk about without talking in this meta way about odds, betting outcomes, etc.,” said Herrman, “politics will start to feel like that.”

“Buy when there’s blood in the streets, even if the blood is your own,” was the maxim of 19th-century banker Nathan Rothschild. But for investors who don’t share his appetite for risk, gold has always been considered the ultimate safe haven.

This appears to be more true today than ever as the price of the precious metal has soared 50% this year, far outpacing returns from equities. In October, the gold value hit $4,380 an ounce, an all-time record.

The rally has been largely driven by uncertainty – “whether that is geopolitical, economic or now there is the interest rate cycle entering people’s minds”, Ryan McIntyre, from investment management firm Sprott, told The New York Times.

What is driving the gold rush?

Each theory behind gold’s soaring price “rests on a different buyer: institutional investors, central banks and speculators”, said The Economist.

Institutions are attracted to gold as a store of value in times of crisis. Previous surges took place after the dotcom crash of the early 2000s, the financial crisis at the end of the decade, and during the Covid pandemic. This time round it is Donald Trump’s tariff war and fears of an imminent AI-stock crash that is driving investors to seek safety in gold.

Central banks, too, have increasingly sought protection “not against short-term meltdowns but longer-run changes”. According to the International Monetary Fund, central bank holdings of physical gold in emerging markets have risen 161% since 2006, with purchases going into overdrive in the wake of Russia’s invasion of Ukraine. Both China and Russia have ramped up switching their official reserve assets out of currencies such as the US dollar and into gold.

Finally, there is the recent US government shutdown. The prolonged stand-off increased “long” positions held by hedge funds on gold futures, meaning that speculators are “the most likely drivers of recent price movements”.

What does it say about the economy?

Citadel hedge fund founder and CEO Ken Griffin recently said the rising price of gold is an indication of something big. “That something is a loss of trust,” said The Telegraph. “A loss of trust first and foremost in US treasuries, but also in other G7 government bond markets, including the UK.”

Stress in the long-term bond markets combined with a devaluation of the US dollar, which suffered its biggest decline in more than half a century this year, “have unsettled alternative assets typically viewed as low-risk investments”, said ABC News.

“There’s no way you can interpret these exploding gold prices as a good sign – they're a warning sign,” said Paolo Pasquariello, professor of finance at the University of Michigan. “There’s clearly a case to be made that these high gold prices are a leading indicator of troublesome times ahead for the US economy.”

Will it end?

October’s sudden price decline, when gold dropped 10% before recovering, was “driven by a confluence of factors” that may prove a useful predictor of what might curb the rally, said Bloomberg.

A successful resolution of trade tensions between the US and China “could stop gold from resuming its record-breaking rally – as could a broader de-escalation of US tariffs”. A “continued dollar rally, a resolution to the legal proceedings against Fed Governor Lisa Cook, and a peace deal between Russia and Ukraine” could also take the shine off gold’s appeal to investors.

Investor anxiety about an AI bubble is at "fever pitch" with fears growing that a surge in artificial intelligence investment could lead to a crash similar to 2000's dot-com bust.

Artificial intelligence has seen huge investment: 50% of venture dollars were spent on AI start-ups during the first half of 2025, according to data from CB Insights. And in those six months "AI funding exceeded spending for all of last year", said Business Insider.

Yet investors have a number of concerns. "Some are wondering whether large language models are actually powerful enough to develop the long-desired superintelligence; some fear tech companies' massive expenditures won't pay off; and some are worried that less experienced investors are getting caught up in the hype."

Why is there so much concern now?

There are a few big reasons. First, is a Massachusetts Institute of Technology report which found that 95% of companies investing in generative AI have yet to see any financial returns. Given that there has been between $30 billion (£22.1 billion) and $40 billion (£29.6 billion) in enterprise investment in generative AI, the lack of returns is concerning.

Another is a warning from OpenAI CEO Sam Altman that investors are getting "over-excited" about AI. He told The Verge: "Are we in a phase where investors as a whole are over-excited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes." He added that some valuations of AI start-ups are "insane" and "not rational".

Some investors are also spooked by reporting from The New York Times that Meta is looking at "downsizing" its AI division, with some AI executives "expected to leave". It could mark a significant change from Meta CEO Mark Zuckerberg, who has heavily invested in shaking up his company's artificial intelligence operations in recent months.

Will the bubble burst?

It's too early to call a peak in the US stock market, "but the signs of one are starting to appear", said UnHerd. Share prices in the data mining and spyware firm Palantir fell by 10% last week, while AI chip maker Nvidia fell more than 3%, and other AI-linked stocks such as Arm, Oracle and AMD also fell.

Is it all doom and gloom for investors?

Not necessarily. If comparisons to the dot-com bubble are apt, there are likely to be some big losers – and some very big winners.

Although many companies went under during the dot-com bubble, many companies survived and went on to become market leaders – most notably, e-commerce giant Amazon.

"Even when the dotcom bubble burst, there were a handful of fairly obvious winners that eventually came roaring back," said CNBC's Jim Cramer. "If you gave up on Amazon in 2001, you missed the $2 trillion (£1.4 trillion) boat."

"It used to pay to switch jobs," said Katherine Bindley and Lynn Cook in The Wall Street Journal. Now in some cases, it hurts. Two years ago, workers who switched jobs could command a nearly 8 percent salary bump, on average, fueling what became known as the Great Resignation—a wave of employees quitting for greener pastures. That wave has officially crashed. "The salary difference between those who stay in their roles (4.6 percent) and those who change jobs (4.8 percent)" is down to its lowest level in 10 years. Workers tempted to check job listings today are encountering salary deflation. "No one is paying what they used to," said Josh Vogel, who recently took a job paying $50,000 less for the same role he'd had previously. Senior and midlevel managers in tech sectors are facing "pay drops of $10,000 to $40,000 a year" if they want to switch jobs now.

Fear of missing out is being replaced by fear of getting laid off, said Claire Ballentine and Charlie Wells in Bloomberg. A couple of years ago, workers like Jacob Harris, a 36-year-old web developer, seemed foolish not to follow his peers by "switching jobs and notching big pay raises during the red-hot job market in 2022." Now more than 70 percent of Americans "think it's difficult to find a better job than their current one," making those like Harris "glad he stayed put" after seeing "a couple of those peers get laid off." Some career coaches say the previous job market gave young people an unrealistic "expectation of what normal career promotion looks like." Some of the decline in job-hopping may also be intentional, said Oli Mould in The Guardian. More young employees are ditching "hustle culture" in search of an "employer for life." They have been disillusioned by "the constant message from potential employers to be competitive, entrepreneurial, and flexible," which has "failed spectacularly" to deliver "career fulfillment, riches, or a healthy work-life balance." Instead of "chasing the highest salary at the expense of well-being," Gen Z is "choosing stability over chaos, community over churn."

"Stuck" workers are a troubling sign for the economy, said Rogé Karma in The Atlantic. "Switching from one job to another is the main way in which American workers increase their earnings, advance in their careers, and find jobs that make them happy." But according to recent polls, more than two-thirds of American workers feel "stuck" in their current role, and their confidence in finding another job has plummeted. A rise in job stickiness has historically heralded declines in innovation and productivity. "Living standards stagnate, inequality rises, and social mobility craters." A frozen job market can be one of the first signals of a broader economic Ice Age.

The price of bitcoin this week topped $50,000 for the first since the end of 2021, marking a dramatic return for the world's most popular cryptocurrency. 

The rise was fuelled by "a rush of new-investor enthusiasm" and growing hype about a "cryptic-sounding" event known as "the halving" said CNN Business. Bitcoin's comeback has been "one of the more surprising market stories" of recent months, said Yahoo Finance, and followed an "epic" collapse that "burned many investors and took down some of the industry's biggest names".

'A remarkable comeback'

Since its 2009 launch, bitcoin has amassed an army of "loyal proponents who only see it rising in price over long timeframes", said The Times Money Mentor. These fans include some of the world's most respected trading firms, despite the digital currency's many ups and downs.

Bitcoin currently remains a "way off its all-time high" of almost $69,000, in November 2021 said The Independent. But this week marked a "major milestone" in its recovery from below $20,000 at the start of last year.

Bitcoin's resurgence has has been "remarkable", agreed CNN Business, with the price surging by more than 200% from a 2022 low of $16,000.

The latest rise has been driven by an influx of demand and by new money from investors in newly launched bitcoin exchange-traded funds. In January, the US Securities and Exchange Commission (SEC) approved the first ever spot exchange-traded funds (ETFs) for bitcoin, opening up the asset to billions of dollars' worth of institutional investment.        

For Wall Street to finally start trading ETFs of bitcoin represents a "new era in the world of cryptocurrencies" said New York magazine. ETFs are "part of the finance industry's lifeblood". And crypto ETFs make it easier for financial institutions and pension account holders to trade and profit from digital currencies "without having to worry about encryption keys, or getting hacked, or anything like that".

'Not for the faint-hearted'

Some analysts believe the current rally could see the price of bitcoin climbing to a record new high, driven in large part by an upcoming "halving", in April. The event is "hard-coded into bitcoin's underlying network", said The Independent, and takes place roughly every four years, when rewards for mining the cryptocurrency are "slashed in half". This reduces the rate of new coins entering circulation, pushing the price of bitcoin higher.

Previous halvings have preceded record-breaking price rallies, and the next promises to deliver another "scorcher for crypto", said Antoni Trenchev, the co-founder of crypto lender Nexo Capital. “Now that $50,000 has been topped, $69,000 followed by $100,000 look achievable in 2024," he told CNN Business. 

Investment bank Standard Chartered is also predicting that the bitcoin price will reach the $100,000 mark by the end of this year.

Yet experts warn that bitcoin remains hugely volatile. January was "crypto in a nutshell", said Trenchev. Following the endorsement of a spot bitcoin ETF, the cryptocurrency’s price soared to $49,000, but then dipped to $38,500. New investors who endured that "baptism of fire" may now be celebrating this week's gains, but crypto is "not for the faint-hearted".

The founder of Reddit forum WallStreetBets is suing the social media platform after he was kicked out of the now-infamous community that has disrupted financial markets.

Jaime Rogozinski, who created the stock and financial advice subreddit in 2012, is accusing the site of illegally banning him from his role moderating the forum – which has grown to over 13.6 million users – and infringing his rights to trademark “WallStreetBets”.

Rogozinski has said his ousting, which the site says was for violating Reddit policy by “attempting to monetize a community”, is simply a pretext to keep him from trying to control “a famous brand that helped Reddit rise to a $10 billion valuation” by late 2021, said Reuters.

According to the lawsuit filed in Oakland, California, Rogozinski applied to trademark “WallStreetBets” in March 2020, shortly after the forum reached one million users.

One month later, Reddit removed him for violating their policy after he “posted an Amazon listing” for a book he had published earlier that year entitled WallStreetBets: How Boomers Made the World’s Biggest Casino for Millennials, as well as for announcing “a sponsored trading competition on the subreddit”, according to Quartz.

The financial advice subreddit, which has the tagline “like 4chan found a Bloomberg terminal”, has been a major force in igniting investor activity around so-called “meme” stocks. Just months after Rogozinski was banned from the forum, WallStreetBets users helped set off a “trading frenzy” in a “short-seller squeeze” that targeted shares in GameStop.

Other famous so-called “meme” stocks include shares in cinema chain AMC Entertainment as well as retail chain Bed Bath & Beyond.

Reddit has branded the lawsuit “completely frivolous” and said it has “no basis in reality”. A spokesperson told Reuters: “Jaime was removed as a moderator of r/WallStreetBets by Reddit and banned by the community moderators for attempting to enrich himself. This lawsuit is another transparent attempt to enrich himself.”

In an interview with The Wall Street Journal, Rogozinski said that he felt the ousting was “personal” and that he feels “betrayed” by the affair.

He is seeking at least $1m in damages for breach of contract and violations of his publicity rights, and a ban on Reddit’s use of WallStreetBets unless it reinstates him as senior moderator of the r/WallStreetBets subreddit.

The Bank of England has been drawn into a “risky game of financial Whac-A-Mole”, said Neil Unmack on Reuters Breakingviews. As the sell-off of gilts rekindled this week – ahead of the expiry of the Bank’s emergency £65bn bond-buying programme on Friday – the BoE was forced to intervene on two consecutive days to restore calm in the £2.3trn market, and “avert a fire sale by pension funds”. Yet there are many signs that the market is still “distressed”.

The Chancellor, Kwasi Kwarteng, has pledged to bring forward to 31 October a plan outlining how he will “cut borrowing over the medium term”. But according to the Institute for Fiscal Studies, he’ll need to cut spending by £62bn by 2026 to stop debt rising relative to GDP. “That looks politically implausible.” Without a credible fiscal strategy, investors may continue to shun UK gilts, putting the Bank “under more pressure to help”. Yet the more Governor Andrew Bailey intervenes, “the more he will be accused of propping up a broken administration”.

To make matters worse for Bailey and Kwarteng, this crisis is playing out as they face a close encounter with critics of the international kind. Both are in Washington this week, attending the annual meeting of the IMF. For Kwarteng, in particular, it is likely to be an “awkward first date” after the “very public dressing down” the IMF gave him over his tax and spending plans, said Richard Partington in The Observer. Bailey will also come under pressure “to reassure” international investors that “the market dysfunction is over and that the BoE has a grip on inflation”, said the FT.

‘A sticking plaster’

Despite the Bank’s efforts, there is plenty of scepticism out there. HSBC’s head of UK rates strategy described the first intervention as “a sticking plaster”. Others have accused the Bank of not putting its money where its mouth is, said Patrick Hosking in The Times. On Monday, it boosted its potential buying capacity to £10bn a day, yet actual purchases were a more “modest” £853m, and the sell-off intensified.

A name that keeps coming up in conversations with investors, said Katie Martin in the FT, is that of James Carville – the Clinton adviser who remarked in 1994 that he’d like to be reincarnated as the bond market because “you can intimidate everybody”. In the period after the financial crash, governments were largely able “to ignore markets” as central banks pushed borrowing costs downwards, and “complacency set in”. High inflation has changed that – and not just in Britain. The “bond vigilantes” are back. The UK’s fiery experience over the past few weeks should be “a wake-up call for the rest of the world”.

“It’s getting ugly out there,” said Ben Wright on Telegraph.co.uk. “Wall Street collapsed into a bear market on Monday” – and fell further the following day, “amid fears that sharply rising interest rates will tip the world’s biggest economy into a recession”. Stock markets duly swooned across the world. The rout was triggered by figures showing that US consumer prices had jumped 8.6% from a year ago in May, said Hudson Lockett in the FT. This stoked expectations that the US Federal Reserve could implement “an extra-large rate rise of 0.75 percentage points” at this week’s monetary policy committee – and may follow up with another in July. Growing anticipation of sharper rate rises also caused prices of government bonds to lurch downwards.

Fed chairman Jerome Powell “prizes predictability”, said The Economist. The idea is to give investors “ample guidance” to prepare them for policy changes. “But the past few days have been a whirlwind.” Suddenly, “the table has been slanted in a more hawkish direction”, with Powell contemplating “the biggest single rise” since 1994. “History suggests that rapid monetary tightening often precedes a recession. But the Fed knows that runaway inflation would be worse.” There’s no longer any excuse for failing to act, agreed DealBook in The New York Times. “Supply chain problems have eased”, yet prices have nonetheless continued to rise because of “continued intense demand for goods and services”. So far, “the Fed’s moves have not had much effect”. Indeed, some economists argue that the current 8.6% inflation figure may even underestimate the true situation.

The likelihood is “of a long, grinding market correction amid extempore monetary policymaking”, said Lex in the FT. No wonder “investors are rushing for safety”. People “quibble about definitions of a bear market”, said John Stepek on MoneyWeek.com, but with America’s benchmark S&P 500 index now down by 20% this year (and the tech-focused Nasdaq down by nearly a third), “no one’s querying that we’re in one now”. Still, “the scarier stuff is happening in bond markets”. The yield on ten-year US Treasury bonds (which moves inversely to the price) hit its highest level since 2018 – raising “some intriguing questions about the cost of borrowing for governments”. It’s worrying that “yield spreads in the eurozone are widening”: markets seem to be again “differentiating between the creditworthiness of countries” in the zone. That, of course, was the root of Europe’s sovereign debt crisis in the 2010s. No one is yet predicting a repeat. But it was telling that the European Central Bank convened an emergency meeting this week.

The cryptocurrency market has shed two-thirds of its value in seven months, compunded by a “brutal bout of selling” on Monday.

According to data site CoinMarketCap, the overall market reached as low as $892bn yesterday, a large drop from its peak of $2.9trn in November last year.

The largest and most well-known cryptocurrency, bitcoin, fell to an 18-month low of $23,750, and was down by 50% so far this year.

What is going on?

Investors have “ditched riskier assets in the face of high inflation and fears that interest rate raises by central banks will hamper growth”, said Reuters.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told the news agency that bitcoin and Ethereum, the second most popular cryptocurrency, are “prime victims of the flight away from risky assets as investors fret about spiralling consumer prices around the world”.

What happened yesterday?

After another report of high inflation in the US on Friday and further fears of interest rate hikes, “both the stock market and cryptocurrencies tumbled” on Monday, said Fortune.

Crypto was “hit hard” after lender Celsius announced that it was suspending transactions and withdrawals on Sunday, citing “extreme market conditions”, explained the magazine.

It added that the “world’s largest crypto exchange, Binance, also briefly paused withdrawals, but has since resumed activity and called the interruption a result of ‘several minor hardware failures’”.

What next?

The “blow-up shows risky investing and capital preservation are mutually exclusive”, said the Financial Times’ Lex team. Platforms such as Celsius, which had advertised an annual percentage yield of 18.63%, appeared to “offer the best of all worlds to crypto enthusiasts”, but the lender “cannot lay on free lunches indefinitely or immunise against depositor runs”, they continued.

Most crypto traders are “relative newbies, making them the largest and hardest-hit group in Monday’s brutal bout of selling”, added Bloomberg. It is those retail investors “who rode the crypto hype train over the past year” who are now “getting hammered”.

Tony Edward, who hosts the Thinking Crypto podcast, admitted that the market is “not pretty”, but he is convinced it is a case of “market cycles playing out”. He described the cryptomarket as a “pendulum” that “swings very high” but he said “the crashes also are brutal”.

Scott Melker, a crypto investor and analyst, told Forbes that it is “difficult to predict what comes next” for the market as it will “largely be determined by contagion from potential platform collapses, inflation numbers, Fed tightening and other factors”.

He concluded: “Now is not a time to make guesses, but rather to batten the hatches and ride the storm.”

In January, Mike Novogratz – a former “hedge fund rockstar turned crypto heavy-hitter” – tweeted a picture of a sizeable new tattoo on his left shoulder, said the FT. In homage to his favourite cryptocurrency, luna, it featured an image of a wolf howling at the Moon. “I’m officially a Lunatic!!!” he added. Back then, luna was trading at around $78; by the start of April, it had hit $116. But last week its value slid to “zero” after terraUSD – a sister “stablecoin” that was supposedly pegged to the US dollar – collapsed in value. In all, some $41bn was wiped out, said The Guardian, marking “the largest destruction of wealth” in crypto’s history, according to the analytics firm CryptoCompare.

The shock had a seismic effect across the sector, knocking 15-25% off the value of rival currencies and whacking the already fragile share price of the market’s main exchange, Coinbase. Stablecoins were hit particularly hard, causing the largest, tether, to break its one-to-one link with the dollar on consecutive days. That caused near “panic”, said Simon Freeman in The Times. Unlike more speculative crypto tokens, stablecoins – as the name suggests – are supposed “to bring a measure of stability” to volatile crypto markets, because they’re underpinned by realworld assets. TerraUSD was designed by the Korean entrepreneur Do Kwon, using a complex “algorithmic” arrangement in which its dollar peg would be maintained via the fluctuations of its sister coin, luna, said James Titcomb in The Sunday Telegraph. Many were not surprised when it collapsed, but were shocked when “supposedly more secure coins” backed by cash reserves also wavered.

“Crashes are always painful in the short run,” said Jonathan Levin on Bloomberg, but they have a function. A dot-com-like shakeout for digital currencies might “root out the wannabes and set the stage for true innovation”. Yet with the viability of stablecoins now in question, “the entire crypto market is uneasy”, said the FT. It doesn’t help that tether, which supposedly has $80bn of dollar assets backing its 80 billion coins in circulation, won’t reveal details of them – claiming that would give away its “secret sauce”. “If armchair investors lose their shirts and a few crypto bros see their egos deflated, the reaction may be a shrug of the shoulders.” But if tether faces a wave of redemptions, and is forced to sell assets, “the sheer size of such moves could make already jittery financial markets even more volatile”. Politicians must stop dithering and heed the warnings. “Stablecoins can prompt bank-like runs”, yet they “enjoy the scant regulation of the cryptosphere. Real-world rules are needed.”

Euro-parity?

Prepare for a big shake-up in the currency stakes, said Alice Gledhill on Bloomberg. For the first time in two decades, the euro “is on the verge of US dollar parity”. The EU’s common currency hit a five-year low of near $1.03 last week – “buckling from a rush into the greenback as a haven from market turmoil”. And plenty of analysts predict the two currencies will hit parity in 2022. “Hedge funds are already betting on it”: they’ve piled $7bn into “options wagers on parity” in the past month alone.

Nasty cocktail

Although the euro’s plight is largely “a function of dollar strength” – which has been “supercharged” as the US Fed presses on with big interest-rate hikes – the “darkening outlook for the European economy” doesn’t help. Not everyone is negative. Roberto Mialich of UniCredit expects the euro to climb back above $1.10 next year as the Fed’s hiking cycle tails off. But that looks a long shot. The European Central Bank “is walking a tightrope”, said Alice Gledhill, attempting to balance the need “to tame record inflation” against “the economic damage that could cause” – especially in the bloc’s most indebted member states, such as Italy. “We find it hard to see a silver lining for the single currency at this stage,” noted HSBC, pointing to downward revisions to growth forecasts and upward revisions for inflation. “This is a nasty cocktail for any currency to try to digest.”

The pound’s ‘doom loop’

We know all about that in Britain, said Liam Halligan in The Sunday Telegraph. The pound has lost a tenth of its value against the dollar this year, as the cost-of-living crisis has escalated. It is “now close to the psychologically important $1.20 benchmark”. Could it also be heading for dollar parity? Given the speed of the recent falls, it can’t be ruled out. “Sterling is now at risk of falling into ‘a doom loop’ – in which a lower pound results in more expensive imports, adding to upward price pressure. The resulting rise in inflation then pushes the pound down even more, creating a downward spiral.” The Bank of England claims it can’t do much about the global energy and food prices. “But if decisive rate rises help prevent sterling’s fall, they would help hugely in efforts to rein in rampant inflation.”

Investors initially acted with relief when the US Fed raised its main interest rate by 0.5 percentage points last week, even though it was “the first rise of that magnitude in more than two decades”, said the FT. The thinking was: it could have been worse. Fed chairman Jay Powell appeared to rule out an even larger rise of 0.75% for now. But it wasn’t long before “market bullishness” again gave way to nerves about how far borrowing costs would have to rise to tackle runaway inflation. The familiar “whipsaw” pattern reasserted itself: “strong rallies on some days, but even sharper sell-offs on others, as puzzled investors tried to position themselves for the end of easy-money policies”.

Wall Street has now “endured its worst run of weekly losses in more than a decade – six in a row”, said The Trader in Investors Chronicle. And, as yet, this bear market looks very far from turning. The rout is increasingly global, said Russell Hotten in The Times. Indices across the world “sank deep into the red” earlier this week as worries about China’s falling growth, and the economic fallout of the Ukraine war, combined with concerns over whether central banks can tame inflation “without tipping the world’s largest economies into recession”. Even “diversified” portfolios are unsafe in the current environment, said The Economist. “In America, investing 60% in stocks and 40% in bonds produced an annual average return of 11% from 2008 to 2021.” That strategy has lost 10% this year. “Whereas 2021 marked the apex of the ‘everything rally’, in which most asset prices rose, 2022 could mark the start of an ‘everything slump’.”

The big question is how much lower the US S&P 500 might fall, said Will Daniel in Fortune. The good news, according to Bank of America strategist Michael Hartnett, is that “bear markets are quicker than bull markets”. Based on data gleaned from the last 19 of them, he reckons the S&P 500 “still has another roughly 25% downturn ahead of it from current levels”. The bottom, he suggests, might be hit in October – though “a floor does not equal a new bull market for tech stocks”, which are likely to “remain in a bear market for the next two years”. A lot of speculation has already been flushed out of the market, which is “healthy”, said John Authers on Bloomberg. But ultimately this is about economics. “If inflation comes under control relatively quickly and the world escapes without a dose of stagflation, then it will be that much easier to justify paying up for stocks”. But if the economy “moves to the worse end of expectations, with negative growth and higher inflation”, expect the falls to continue. It’s not the cheeriest of messages.

Blue Marilyn

This year’s spring auction season in New York was billed as a key test of the health of the art market, said DealBook in The New York Times – “an indication of whether top-quality trophies can continue to command high prices, no matter the instability of the world”. The “bellwether” work kicking off proceedings was Andy Warhol’s 1964 silk-screen of Marilyn Monroe, Shot Sage Blue Marilyn, which sold for $195m – breaking records as both “the highest auction price ever for an American artist” and the most expensive 20th century work. That was taken as a good omen, amid the current “surfeit of blue-chip art”. As Philip Hoffman of advisory firm The Fine Art Group observed, “there’s been a huge amount held back for two years, and there’s a huge amount of pent-up demand from new clients”. He reckons Manhattan’s two-week auction marathon could raise $2bn.

Four-minute wonder

The iconic Marilyn painting, one of a series of portraits Warhol made of the Hollywood star after her death in 1962, was sold “in just under four minutes”, said Waiyee Yip on Insider. Christie’s called it a tribute to Warhol’s “pervasive power”. The painting was bought by mega-dealer Larry Gagosian, who declined to say whether he was acting for himself or a client. But Asian bidding was notably “thin” throughout the sale, said Katya Kazakina on Artnet – “the Hong Kong salesroom was quiet when the Marilyn came up” and “Middle Eastern bidders didn’t seem to materialise either”.

Inflation hedge?

“Stocks, bonds and crypto are in turmoil. But more tangible assets are on a roll,” said Lex in the FT. An old football shirt – “admittedly worn by Maradona when he scored the world’s most memorable goal” – recently fetched over £7m. Art, like gold, can claim a history as “a store of value”. Indeed, Sotheby’s Mei Moses Index suggests that “over the long term” it has beaten inflation. But big caveats apply. Paintings are illiquid assets, prone “to more subjective impulses than gold or even houses”. With borrowing increasingly funding purchases, the art market has also benefited from low interest rates. Warhol’s Blue Marilyn might look like “the perfect kitschy inflation hedge”. But appearances can be deceptive.

Brutal April

Boris Johnson has reportedly joined “a final push” to persuade the Cambridge-based chip designer Arm to list in London. The seller, SoftBank, has a strong preference for New York, the default destination for Big Tech listings. But nowhere is safe these days, said Laurence Fletcher in the FT. High-growth tech stocks have officially “entered a bear market” – defined as a 20% or more fall from a recent high – ending “one of the most lucrative trades of recent years”. The MSCI World Growth Index has fallen 22% since its November high, and “April has been particularly brutal”. Among the big casualties are Cathie Wood’s Ark Innovation fund, a former “poster child” of tech investment, which has lost 48% this year. The most gung-ho UK investor, Scottish Mortgage Trust, is down 34%.

Dot-bust redux?

“It’s now dawning on people that there’s more to investing than handing out capital like lollipops at a school fete to anyone with an idea for flying taxis or carbon-free hotdogs,” said Barry Norris of Argonaut Capital. Indeed, there’s a feeling that we’ve been here before, said David Brenchley in The Times. The dot com bubble, which began to burst in 2000, took two years to fully deflate. Are we already in the middle of a similar crash? Some of the biggest fallers – such as tech-related lockdown winners like Zoom, Peloton and Moderna – have lost 65-85% of their value since their most recent highs. Even the NYSE Fang+ Index, which tracks the biggest tech shares, is down 27% this year, after recent steep declines at Netflix and Amazon.

Re-balancing act

Of course, as Richard Hunter of Interactive Investor points out, investors ignore established tech giants at their peril. Many have “dominant, and in some cases, unassailable, positions in their market…They are prime examples of what Warren Buffett would describe as having a ‘moat’ around the business,” he told The Times. Indeed, David Coombs of Rathbone suggests this could be the chance to build the tech portfolio “you have always wanted”. More cautious voices urge “rebalancing”. If you decide to stick with tech, said Laith Khalaf of AJ Bell, give yourself “a buffer against recession” with some “old economy stocks” that pay resilient dividends too.

Covid ructions

Almost a month after Russia’s invasion of Ukraine, turbulence in the oil market shows little sign of ending, says The Economist. The price of a barrel of Brent crude has whipsawed from a peak of $128 to a low of $98. Indeed, “the OVX index of oil market volatility has rarely been higher in the past decade than it has been this month”, reflecting the big geopolitical forces – war, inflation and Covid-19 – now buffeting the world. This week, the latter resumed centre stage on news of an unexpected eight-day lockdown in China’s financial capital, Shanghai. “There were signs of deceleration in China’s economy, particularly in the property sector” even before the latest Covid outbreak. Any sign of the slowdown becoming more broad-based “would mean more tumult for commodities”.

Second-guessing

China’s CSI 300 Index, a benchmark of Shanghai and Shenzhen listed stocks, appeared to take the news in its stride, said Lex in the FT: it fell by less than 1%. But it had already fallen 16% this year, so “the risk of lockdowns has to some extent been priced in”. Yet the sudden restrictions threaten to have “a bigger, lasting influence”. Government officials in Shanghai denied plans to lock down the city just one day before Sunday’s announcement. “That has left investors second-guessing which companies and cities will be next in line to be affected.”

Capital flight

Many are taking no chances, said Pete Sweeney on Reuters Breakingviews. A study by the Institute of International Finance indicates that China has been experiencing “unprecedented” capital flight since Russia invaded Ukraine, with average daily outflows touching nearly £500m at one point. To add insult to injury, “the study found no similar outflows from other emerging markets.” Any exodus of pension funds and insurers who “buy and hold” assets for the long run in China will be painful. “Although small in absolute terms, their presence helps anchor market valuations.” Chinese bourses are already the world’s worst performing outside Russia. “If the capital flight is sustained, it could aggravate the current sell-off at a politically sensitive time”: President Xi Jinping is set to be elected to a third term later this year.

Farm crisis

In the weeks since the Russian invasion, the West Midlands dairy farmer Ed Hemming has slaughtered 26 cows, said Sam Chambers in The Sunday Times – a tenth of his herd. The unplanned cull was a sad but straightforward economic decision caused by “mayhem in the global commodities markets”. While Hemming’s bills for fertiliser and fuel needed to sustain his herd “almost doubled overnight”, he reports that “the price of culled cows has gone through the roof”, due to high demand for meat from McDonald’s and other outlets. “I am depleting my herd to generate quick cash to cover bills.

Soft options

Should you attempt to trade soft (or grown) commodities like grain? Investing directly – say, via an exchange traded fund (ETF) tracking prices – is best left to “sophisticated investors”, said David Rodeck and Benjamin Curry on Forbes Advisor. Since market prices can spike and fall rapidly, you need a high risk tolerance to “stomach short-term losses in pursuit of long-term gains”. One safer option is to check out a managed agricultural fund. Another is to look at stocks that benefit, directly or indirectly, from rising agricultural prices. It worked for me, said Ian Cowie in The Sunday Times. I bought into Archer Daniels Midland (ADM) – one of the biggest distributors of agricultural commodities in the world – in 2016 at $42/ share. The value of the stock has now doubled to around $85. Another good bet has been tractor-maker Deere (DE), whose price has shot up from $194 last August to $388 last week.

Oof!

For evidence of how swiftly sentiment can turn in commodity markets, you need only look at this week’s “vicious selling” of energy and metals, said Dominic Frisby on Moneyweek.com. Oil plummeted from a high of $140/barrel last week to close to $100 on Wednesday, taking gold, palladium, copper, aluminium and iron ore with it. “Don’t try to make sense of it.” The fundamental case for higher metals prices remains: “even without this war, many years of underinvestment were leading to supply shortages”. But the speculative spikes created by “panic and frenzy” have now given way to a “wash out”. The only question now is where “prices find their floor”.

For markets, it was something of a “St Valentine’s Day massacre”, said The Trader in Investors’ Chronicle. Mounting tensions between Russia and Ukraine were largely shrugged off earlier this year; but reports that a war could start “within days” concentrated minds. The FTSE 100 lost 2% on Monday; shares in Frankfurt and Paris were down by more than 3%. Banks took a hit on fears that Russia “could be cut off from the SWIFT payments network”. Travel stocks, including IAG, Tui and Wizz Air, were whacked. And although the price of Brent crude futures rose above $96 “to the highest in almost eight years”, BP shares fell due to its stake in Rosneft, the Russian energy giant. Wall Street was also gripped by geopolitical jitters, said DealBook in The New York Times. The situation eased after Russia’s pledge this week to withdraw troops. But “Western officials have cautioned that an invasion of Ukraine is still possible”, and “markets are still worried”: US stock futures fell on Wednesday.

Even if Russian tanks do roll across the border, said Matthew Lynn on Spectator.co.uk, the financial “carnage” won’t last. “True, the most serious armed conflict on European soil since the end of WWII is a serious matter. But geopolitical events rarely make much difference to the markets for more than a few days.” We saw that after 9/11, after JFK’s assassination, after the Suez crisis, and after North Korea invaded the South in 1950. Granted, a Russian invasion could have “long-term consequences for the global economy” – particularly if it’s part of a “pact with China” that marks the birth of a Sino-Russian economic order, threatening US dominance. But that “would play out over decades”; it’s hardly an immediate threat.

The real problem, said Darren Dodd in the FT, is the impact of anxiety on existing market conditions. In commodities, Ukraine tensions have worsened an already worrying inflationary “crunch”. Gas prices in Europe (where lower flows from Russia have left storage facilities only a third full) have been driven still higher. Sanctions on Russia, meanwhile, could have a severe effect on raw materials prices, especially metals–supplies of which are already badly depleted. “Major exchanges have less than one week’s supply of copper stocks”; supplies of aluminium (now at a 13-year price high) are also low. “This is the most extreme inventory environment,” noted a Goldman Sachs analyst: it’s “unprecedented”. The impact of war on investment portfolios “may be hard to discern”, said Jon Sindreu in The Wall Street Journal – but it would certainly stoke already rampant inflation. “The optimum outcome is that nobody pushes the button.”

Ever wondered why regular Americans hold their leaders in such low esteem? It’s partly because they suspect them of playing the system, said the St. Louis Post-Dispatch – and who can blame them when you see how politicians speculate on the stock market.

In January 2020, the public had no idea of the impact Covid was about to have, but many members of Congress did, because they were getting classified briefings from experts. In the wake of those briefings, then senator Kelly Loeffler sold off millions in stocks, and invested in a teleconferencing firm. Senator Richard Burr sold his hotel holdings. Senator Rand Paul’s wife bought stock in a pharma company making antivirals.

Whether these were “just happy coincidences or something more sinister”, they looked very dodgy. Some legislators are rightly now pushing for members of Congress to be banned from trading in individual stocks.

The proposed legislation “comes not a moment too soon”, said Katrina vanden Heuvel in The Washington Post. The problem is not just that lawmakers can unfairly enrich themselves; it’s that they’re open to glaring conflicts of interest. How can Congress be trusted to dispassionately regulate Big Tech, or the drug giants, when so many of its members have a financial stake in these firms?

To see how it can cloud their judgement, just look at the way Speaker Nancy Pelosi initially tried to resist reform: “We are a free-market economy,” she said. Members of Congress “should be able to participate in that.” This, of course, is the same Nancy Pelosi who, with her venture capitalist husband, has done so well from trading that “there’s an entire community on TikTok” that follows her portfolio – calling her the “queen of investing”.

The proposal is that members of Congress should put their assets in blind trusts while serving, said Theo Wayt in the New York Post. That would help restore public confidence. And for some Democrats it would have “an added bonus: revenge on Senator Joe Manchin”. They’re furious with their colleague for blocking President Biden’s $2tn Build Back Better Act, which would have allocated tens of billions of dollars to fight climate change. If a new law forces Manchin to give up control of his stake in a coal company, they’ll be happy.

It’s “amazing” that we’re even debating this reform, said Robert Reich on CommonDreams.org. It’s a “no-brainer. Let’s get it done.”

Braced for war

Traders are bracing for war in Ukraine, says The Economist. Just how bad could things get? Helima Croft, head of commodity strategy at RBC Capital Markets (and a former CIA intelligence analyst), doesn’t mince words. “If Russian tanks cross the border, markets will freak out.”

Although the biggest impact would be on European gas markets, Russia’s “huge importance” as a commodities supplier means “shockwaves would spread far more widely”. It supplies nearly a tenth of the world’s aluminium and copper; 43% of palladium (used in catalytic convertors). It is the world’s “second-largest exporter of oil” and “the largest exporter of wheat”. The mere fear of disruptions has already sent prices up – Brent crude is approaching $90/barrel and could hit $120 if war breaks out, according to JP Morgan. And since “a big chunk” of Ukrainian wheat production takes place in regions exposed to invasion, it could have an “extraordinary” impact on prices. They could easily double.

Pass the lithium

Already reeling from a shortage of semiconductors, carmakers are facing a new “shock”, said Reuters Breakingviews – a crunch in the supply of the “cocktail of metal compounds” that are crucial to battery making, and therefore to the production of electric vehicles. General Motors noted this week that US sales of its EVs “had ground to halt” because of the dearth. The price of lithium has already rocketed 150% year-on-year. It could go higher. Although there’s no shortage of ore, it can take “up to ten years to bring a mine fully online”, and high demand is outstripping supplies. That dynamic is unlikely to change. UBS estimates that “demand for lithium could rise nearly tenfold by 2030”, while “supply may barely manage half that”.

Go broad

The plethora of exchange-traded funds (ETFs) tracking prices has made investing in individual commodities much easier. But many investors worry about volatility risks. The solution is a broad-based fund, said Ceri Jones on Interactive Investor. She likes The WisdomTree Enhanced Commodity ETF, which gives “broad and diversified” exposure to “energy, agriculture, industrial and precious metals”. A good “active fund” option is the BlackRock World Mining Trust.

“It’s been an ugly start to the year” on the US stock market, said Michael P. Regan on Bloomberg – and “many on Wall Street are bracing for it to get even uglier”. By midweek, the S&P 500 had dropped 10% since the start of the year, and the tech-heavy Nasdaq by 15% – but “market pundits seemed more shaken than those numbers alone would suggest”, with talk of “long winters and bursting bubbles”. There’s a sense that for the first time in ages, the markets are “going to have to grit out losses without help from an accommodating US Federal Reserve”. The strong balance sheets of many companies “could eventually help put a floor under equity losses”, but “the long-reigning expectation that risky assets will mostly go up” has been broken. This sell-off may prove “the ultimate test of what’s real and what’s not”.

The background to the nervousness was this week’s US Fed policy meeting, said DealBook in The New York Times. While few pundits expected the Fed to raise interest rates this week to tackle galloping US inflation (currently at a 40-year high of 7%), no one doubts it is chairman Jay Powell’s “main concern”. Most market observers predict the first rise will come in March. After that, wrote Goldman Sachs economist David Mericle, in a note to clients, the Fed may look to tighten “at every meeting until the inflation picture changes”. Some economists were also expecting Powell to signal “an aggressive contraction” of the Fed’s balance sheet, said The Economist – a “quantitative tightening” of the assets that were purchased to smooth the economy at the height of pandemic. Traders haven’t been waiting around to find out. The sell-off of stocks and bonds in recent weeks is a sign of their sense “that a hawk is circling overhead”.

It’s notable that US markets, caught up in their own woes, seem to be ignoring “the now very real prospect of war in Europe”, said Jeremy Warner in The Sunday Telegraph. Perhaps they see no point in reacting until the catastrophe “actually happens” – which it may not, given that Vladimir Putin has got the West “over a barrel, quite literally” over exports of oil and gas. The prospect of a war in Ukraine was certainly “in the mix” of this week’s sell-off in Europe, said Nils Pratley in The Guardian: but it was warnings from the US that really got traders going. “Let the Wild Rumpus Begin” was how Jeremy Grantham, the British co-founder of the Boston-based fund manager GMO, started his commentary, warning that stocks are in a “superbubble”, and that we’re about to hit the “vampire phase” of the bull market. Grantham called the dot-com and 2006 crashes. Once again, “he may have got his timing spot on”.

In a recent note to investors, analysts at J.P. Morgan Cazenove described Universal Music as an “extraordinary, must-own asset”, adding that its €34bn (£29bn) valuation might prove conservative, and predicting one of €54bn (£46.1bn). The world’s biggest music company didn’t quite hit that high note when debuting on Euronext in Amsterdam, in “Europe’s largest listing this year”, said Reuters. But shares in the group – whose talent ranges from The Beatles, The Rolling Stones, Bob Dylan and Queen, to Lady Gaga, Taylor Swift and Billie Eilish – nonetheless “leapt by more than a third”, arriving at a valuation of €45bn (£38.4bn). Investors are clearly betting heavily that the “boom in music streaming”, which has transformed the label’s fortunes, “still has a long way to go”.

The big winners from this blockbuster float are shareholders in Universal’s former parent, the French media group Vivendi, who each “received one share of Universal before the listing”, ensuring 60% of the label is now in their hands, said Leila Abboud in the FT. It’s also “a big win” for Sir Lucian Grainge, who has headed Universal since 2010 and now scoops a bonus of at least $140m (£101.8m). Many “struggling-to-make-a-living” artists will be aghast at that “mind-blowing” figure, said Tim Ingham in Rolling Stone. But given his key role in reviving an industry that faced terminal decline, “it’s hard to say Grainge is undeserving of his payday”.

A native North Londoner, Grainge, 60, walked out of an A-level exam to negotiate his first record deal with the Psychedelic Furs, said Mark Sweney in The Guardian. U2’s frontman Bono once described him as a “ruthless f***er” with “good ears”. Grainge “almost did not live” to see this milestone. Early last year, he narrowly survived a life-threatening bout of Covid.

Fresh eye

Unloved UK stocks are suddenly all the rage, says Pierre Briançon in Barron’s. The private equity battle for Morrisons – and a rumoured swoop for Sainsbury’s – have sent supermarkets soaring. And there’s a growing sense that the premiums being offered by private equity are evidence that public markets are undervaluing British stocks more broadly.

The UK market has significantly underperformed European and US markets in recent years. And this year the FTSE 100 is up less than 8%, compared to 15% for the equivalent index in Germany, and 20% in France. “Investors, feeling that other markets are now fully valued, may be looking at UK equities with a fresh eye.”

Takeover talk

The surge in private equity bids is set to continue, said David Brenchley in The Sunday Times. But there’s also no shortage of attractively-priced UK companies that could tempt trade buyers too. Analysts tip the healthcare, biotech and gaming sectors as ripe for consolidation, while the wealth and asset management sector is another promising area, says investment firm Canaccord. Where should retail investors put their money to take advantage? Canaccord’s Kamal Warraich suggests Liontrust UK Smaller Companies or BlackRock Smaller Companies, while Jason Hollands of Bestinvest likes Threadneedle UK Equity Income, Fidelity Special Situations, and AXA Framlington UK Mid Cap.

British stodge

It’s not just takeover talk that is driving share prices – it’s a longer-term rotation into unfashionable “value” stocks, said Patrick Hosking in The Times. Take, for example, the Temple Bar Investment Trust, whose share price has leapt 47% since last November (and 19.3% in the six months to June) by holding the unexciting likes of Royal Mail, NatWest, Aviva, BP and Marks & Spencer. The trust’s co-manager Ian Lance reckons the rebalancing away from “growth” to “value” has years further to run, and says UK stocks are at their biggest discount to international stocks in 50 years. Just as “tech-sceptical investors started to pop a few growth stocks into their portfolios as an insurance policy five years ago”, now there’s a good case for investors with “whizzy tech-heavy portfolios to add a side-order of cheap British stodge”.

Bad news for the FTSE 100, said Neil Hume in the Financial Times. The UK blue-chip index “is set to lose its biggest company”. The £137bn Anglo-Australian mining giant BHP is ditching its “dual-corporate structure”, which currently sees it listed as two separate companies on the London and Sydney stock exchanges, and shifting its “primary stock-listing to Australia”.

The move marks “the most radical overhaul” to BHP’s business since it was formed in a merger two decades ago, said August Graham on PA Media. Some investors, notably the activist New York-based hedge fund Elliott Advisors, have been pushing for this “for years”, as a means of unlocking billions in value.

Yet BHP’s already in the money, said Hume in the FT. This year’s commodities boom has delivered soaring profits of US$24.6bn, enabling it to deliver “a record final dividend” of $10.1bn. Moreover, CEO Mike Henry is making good progress shifting focus towards in-demand metals like copper and nickel, and “green commodities” – this week confirming a plan to merge BHP’s oil and gas business with Australia’s Woodside.

The shift Down Under could yet hit a pothole. In 2018, the Anglo-Dutch giant Unilever dropped a comparable “unification” scheme involving relocation to Rotterdam, following pressure from London shareholders. A similar rebellion may now be fermenting over BHP. “For UK investors this sucks,” complained one investor. “This is a fantastic company.”

Bad/good news

“Much can be gauged by the relationship between stocks (which gain on optimism) and gold (which gains on pessimism),” said John Authers on Bloomberg. A rising gold price signals concerns about currency debasement and inflation; “it’s a hedge against central banks losing control”. So what should we make of this week’s gold “flash crash”, in which the precious metal lost 4% of its value in a single session during Asian hours on Monday, before recovering by almost 2% to $1,730 per oz? Bad news for goldbugs would seem to indicate better news for the rest of us.

Gold, oil and the dollar

The sharp fall was certainly in line with the overall trend, said Neil Hume and Henry Sanderson in the FT. “Traditionally considered a haven metal”, gold is down 8% this year – mainly on account of rising bond yields and a stronger dollar, which “dampens the appeal” of holding it. The strong US greenback is also causing ructions in other markets, notably oil, because it “makes crude more expensive for holders of other currencies”. The price of Brent, which suffered steep losses last week, fell by more than 4% to $65.33 a barrel on Monday – though much of the decline was down to “growing concerns” about the Delta virus variant “sapping demand in Asia”; it doesn’t help that the world’s biggest importer, China, “is currently fighting its worst Covid outbreak since the start of the pandemic”.

Loss of faith

“Gold’s swift drop to the lowest since March” was “exaggerated” by technical factors, and the “poor liquidity” that often affects markets in August, said Bloomberg. But the trigger was the release of a set of “strong US jobs data” indicating that “the world’s largest economy is well on its way to recovery”. If that prompts the US Fed to become more “hawkish”, it “could spell the start of a definitely bearish market for bullion”. Investors in gold exchange-traded funds (ETFs) are already voting with their feet. Having driven the gold price “to a record last year”, they’ve cut their holdings significantly. Given the widespread loss of faith, “it’s hard… to be bullish for gold at the moment”, said Marcus Garvey, head of metals strategy at Macquarie. Only the brave will buy the dip.

Robinhood marched its merry men to Wall Street last week in one of Nasdaq’s biggest IPOs in years, valuing the disruptive online brokerage at $32bn, said James Phillipps on Citywire. It was a fittingly “unconventional listing”: the company offered a third of its shares to its own customers. Hundreds of thousands signed up, only to see it flop. Shares fell by over 8% on the first day – a “limp opening” in “stark contrast” with Robinhood’s “stratospheric growth since the start of the pandemic”, during which it has “won over an army of fans, particularly among younger investors”, doubling its customer base to 31 million. Shares in the outfit, which offers equity, cryptocurrency and options trading as well as cash management, have since bounced back well above the $38 float price, said Maggie Fitzgerald on CNBC.com. They surged by more than 24% on Tuesday confirming, belatedly, the market’s faith in Robinhood’s mission “to democratise” finance.

The company, founded by Vlad Tenev and Baiju Bhatt in 2013, has “revitalised” a type of day trading last seen in the dotcom bubble at the turn of the century, said the FT. Robinhood’s pitch to investors – that everyone, not just the giants of Wall Street, should have access to the US stock market – has “become marketing folklore”. Investors on its app have sent stocks like Tesla, and cryptocurrencies such as dogecoin, to all-time highs – and brought discussion about financial markets “back to dinner tables across the US”. But its progress has also been “pockmarked by crisis and scandal”. Robinhood’s role in the January trading frenzy around the “meme stock” GameStop has come under congressional scrutiny. And it has faced fines and regulatory investigations for everything from lousy customer support to designing game-like features that inspire customers to compulsively check the app. “It’s easy to make positive speeches about democratising finance when everything is going up,” observes economist Patrick Krizan of Allianz. “It will be more interesting to see how people behave when we democratise the downturn.”

Perhaps Robinhood’s greatest contribution has been the “laudable” way it pioneered lower costs for investors, said The Economist. “For a time, the big retail brokers ignored the plucky upstart”, but after “a quick, brutal price war”, they all surrendered. There are plenty of caveats, said Matt Schifrin and Antoine Gara in Forbes. But “Robinhood’s long-term success and legacy” will depend on whether the good it is achieving – disrupting Wall Street and introducing millions of newcomers to investing – “outweighs the negative effects and risks”. The jury’s still out.

Chinese burn

“When crypto prices fall, the lurches lower can be rapid,” said Adam Samson and Katie Martin in the FT. We saw as much when the price of bitcoin plunged by 12% in a day on Tuesday, taking the price below $30,000 for the first time since January and dragging down many other “alt-coins”, including ethereum and dogecoin, with it.

The “dominant driver”, according to Michael J. Saylor of MicroStrategy, was further regulatory pressures from China – once the centre of bitcoin production – which has banned the “mining” of bitcoins in major provinces. The country’s central bank has also warned several of the largest state-owned banks and Jack Ma’s Alipay to “identify” and “block” bitcoin transactions.

Death crosses

Bitcoin recovered some ground midweek, said Bloomberg, rising to $34,000 on Wednesday. But it is still down by almost 50% since its April peak of $65,000 – and that has got some “chart-watchers” nervous. “Any meaningful break below $30,000 is going to make a lot of momentum players throw in the towel,” said Matt Maley of Miller Tabak + Co. According to Sean Rooney of Valkyrie Investments, “bitcoin traders could find themselves in choppy waters for weeks to come”.

Traders are muttering about “death crosses” (an ominous chart pattern), said The New York Times. But crypto supporters are still looking “past short-term pain”. Some are optimistic that mine operators will move to the US – particularly Texas, where the governor, Greg Abbott, is promising to make the state a “crypto-leader”, said the Daily Express. There’s also hope in El Salvador, which has adopted bitcoin as legal tender. “China doesn’t have the moral character to mine bitcoin,” said pundit Max Keiser. “America and El Salvador do.”

Harsh lessons

One of the more remarkable findings of the UK financial regulator’s report on cryptocurrencies is that 2.3 million adult Britons are now invested – up from 400,000 a year ago, said Nils Pratley in The Guardian. “The most extraordinary”, though, is that 12% of consumers think crypto investments are “protected”. Nope. “If you lose your shirt on bitcoin, you are not going to be compensated.” There may be some harsh lessons learned this week.

A computer scientist who claims he invented bitcoin has won a landmark court case, allowing him to keep a cache of the cryptocurrency worth billions of dollars.

A jury in Miami found that Craig Wright, an Australian academic first linked to the development of the digital currency by Wired in 2015, should not be forced to hand his former business partner half of his digital assets.

The invention of the world’s most popular cryptocurrency was first described in a 2008 white paper, published under the pseudonym Satoshi Nakamoto. So does the decision mean Wright is Nakamoto – or does it cast more doubt over his true identity?

Uncertain origin

Nakamoto claims to have started developing the digital currency that would become known as bitcoin a year before the publication of the 2008 white paper. In August of that year the bitcoin.org website was registered, before the paper appeared a month later.

First circulated on a cryptography mailing list, the white paper – entitled Bitcoin: A Peer-to-Peer Electronic Cash System – described how the cryptocurrency would work. The first bitcoin software was released by Nakamoto in January 2009.

Embedded in the code of the original software was a headline from The Times: “Chancellor Alistair Darling on brink of second bailout for banks.” This has been widely interpreted as both a timestamp for the release and a critique of centralised banking systems.

The identity of the mysterious Nakamoto has never been publicly revealed, with some suggesting that the alias must represent multiple developers.

In 2013, Dan Kaminsky, a US security researcher who read the bitcoin code, told The Observer that there is “either a team of people” who worked on the cryptocurrency or “this guy is a genius”.

Laszlo Hanyecz, a US programmer who exchanged emails with Nakamoto, also told Wired that he “always got the impression it almost wasn't a real person”, adding: “I’d get replies maybe every two weeks, as if someone would check it once in a while.

“Bitcoin seems awfully well designed for one person to crank out.”

Who’s who?

For his part, Nakamoto has claimed to be a 37-year-old male who lived in Japan. But Wired said as early as 2011 that it always “seemed doubtful that Nakamoto was even Japanese”, adding that “his English had the flawless, idiomatic ring of a native speaker.”

Some speculated that “the name might be a sly portmanteau of four tech companies: SAmsung, TOSHIba, NAKAmichi, and MOTOrola”, the magazine added. Others believed that he represented “a team at Google, maybe, or the National Security Agency”.

In 2014, Forbes data security reporter Andy Greenberg suggested that the true developer could have been US computer scientist Hal Finney, one of the first people to use the bitcoin software other than Nakamoto.

In the same year, Newsweek reported that Dorian Prentice Satoshi Nakamoto, a Japanese American man living in California, whose birth name is Satoshi Nakamoto, could be the real Nakamoto.

Other names cited include computer scientist and legal scholar Nick Szabo, who was linked to the Nakamoto alias in 2013 by blogger Skye Grey, Finnish economic sociologist Dr. Vili Lehdonvirta and Irish cryptographer Michael Clear. Lehdonvirta and Clear were jointly named in 2011 by The New Yorker.

Wright is unusual among those linked to the alias in that he “has claimed that he is Nakamoto” since 2016, the BBC said, despite his claim being “disputed”.

He was first linked to the pseudonym in 2015, when Wired said he “either invented bitcoin or is a brilliant hoaxer who very badly wants us to believe he did”.

Around the same time, technology website Gizmodo published information obtained by a hacker that claimed Nakamoto was a joint pseudonym for Wright and Dave Kleiman, the former business partner with whom Wright would later enter a legal battle.

The family of Kleiman, who died in 2013, claimed the pair “created and mined the first bitcoin in existence, and that Wright had stolen it”, the BBC said.

The Miami jury rejected that claim, but ordered Wright to pay $100m for intellectual property infringement. So is that the end of the mystery?

Lingering doubt

According to CNN, Wright’s victory in the court battle means the computer scientist has “largely prevailed” in the dispute over the $57bn fortune.

He has been cleared “on nearly all issues in the dispute, including that half of the 1.1m bitcoin in dispute belonged to the family of Kleiman”, his former partner. Responding to the judgment, Wright that he had been “completely vindicated”.

But “the jury however found no evidence that the two created bitcoin”, The Wall Street Journal (WSJ) said, meaning he did not prove that he is Nakamoto.

If the jury had been convinced of Wright’s claim to have invented the cryptocurrency alongside Kleiman, he “could have been legally compelled to sell” a portion of his one million bitcoin “to help pay any monetary awards” to his former partner’s family.

Wright’s various claims that he truly is Nakamoto have been “dissected, and rejected, in the bitcoin community”, while his promises to prove his identity are yet to come to fruition, the WSJ added.

Rather than producing evidence, he has instead attempted to “litigate his claim”, filing various patents on bitcoin’s software and suing a podcast host “who publicly ridiculed his claim” to be the brains behind the digital currency.

All of this means that, for now, the mystery over Nakamoto’s true identity lives on.

The Wild West

The price of bitcoin has returned to near record highs of around $64,000 on news that the US Securities and Exchange Commission has given the green light to “the first widely available investment funds” to track the cryptocurrency, said Kellie Mejdrich on Politico. Three bitcoin futures exchange-traded funds (ETFs) are to go live this month, including one pitched by ProShares, which began trading on the New York Stock Exchange on Tuesday. This is “a landmark moment” for the booming crypto market: the new funds address growing demand from mainstream investors for exposure to an asset that has risen 440% in a year. But bitcoin’s entry into the investment establishment is fraught with controversy. SEC chair Gary Gensler, who once described the crypto market as the “Wild West”, is now under fire from investor advocates for exposing individuals to financial danger.

Suckers, beware?

Bitcoin critics such as Peter Schiff – the CEO of Euro Pacific Capital who doubles as a financial commentator and radio personality – are up in arms, said Jeffrey Gogo on Beincrypto.com. Schiff reckons the SEC deserves to be “abolished” for approving these ETFs. “My beef is that bitcoin pumpers will now use the approval to sucker in more buyers based on the government’s supposed endorsement,” he said. Punters certainly seem to like the look of the ProShares product, said Tanaya Macheel on CNBC. Shares in the fund (which tracks contracts speculating on the future price of bitcoin, rather than the crypto itself) rose 4.8% on their debut. Encouraging news for Invesco, which plans a similar product.

Barometer of exuberance

The euphoria may not last, said John Detrixhe on Quartz. Indeed, “if history is any guide”, this launch “could mark a peak” in bitcoin’s recent ascendancy. Past events that were seen as legitimising crypto – such as the listing of the Coinbase exchange in April – “turned out to be high-water marks”. Ultimately, bitcoin isn’t nearly as “uncorrelated” with stock markets as its boosters claim, said Lex in the FT. The price “roughly halved” last year when the S&P 500 “fell by a third”. Bitcoin is “a good barometer of exuberance”. But it’s a moot point how it would fare in “a prolonged bear market”.

Olly Mann and The Week delve behind the headlines and debate what really matters from the past seven days.

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In this week’s episode, we discuss:

TikTok purchases

The social video platform TikTok is teaming up with the Canadia payment company Shopify to create ads with built-in online stores, making it easy - perhaps too easy - for app users to spend their money. Or, given the youth of the TikTok user base, to spend their parents’ money.

Crypto gets a job

In two cryptocurrency-related stories, Paypal that users will be able to buy Bitcoin on its platform - although not to use it directly in purchases - and the investment bank JPMorgan said its own digital currency, JPM Coin is now being used commercially by a big client for the first time. Both developments seem like a step into the mainstream for digital currencies - but both come with heavy caveats.

Green investments

The “Attenborough effect” has reached the world of personal finance, where it is reportedly driving a significant increase in interest in environmentally responsible investments. The asset manager Liontrust, for example, said its sustainable funds had trebled from £2.5bn to £7.5bn since 2017. And it’s not just about doing good: financial advisers say environmentally responsible companies are more likely to be resilient and could have better prospects for long-term growth.

You can subscribe to The Week Unwrapped on the Global Player, Spotify, Apple podcasts, SoundCloud or wherever you get you get your podcasts

The price of silver has hit a five-month high as the online trading war between Reddit users and Wall Street hedge funds spills over into the precious metals market.

Last week, shares in struggling US video-games retailer GameStop skyrocketed after Reddit forum WallStreetBets took on huge hedge funds that were betting against the stock. The war between short sellers and the band of private investors has seen GameStop’s share price jump by 1,700% in the space of a month.

Now, small-time investors on WallStreetBets are teaming up to pump their money in silver, in what appears to be a fresh bid “to hurt big banks they believe are artificially suppressing prices”, says CNN.

Buying en masse

Along with the hike in silver-mining stock prices, coin-selling websites were also “swamped” this morning as “small-time investors piled in to the metal”, The Guardian reports.

Silver prices quickly climbed as high as $30 an ounce, its highest value in eight years, as traders “bought en masse”, adds the BBC.

WallStreetBets forum members argue that silver is a heavily manipulated market, and “a surge in the silver price could hurt large Wall Street players”, the broadcaster adds.

Reddit user RocketBoomGo said: “Think about the Gainz. If you don’t care about the gains, think about the banks like JP MORGAN you’d be destroying along the way.”

All that glitters

The hashtag #silversqueeze was trending on Twitter as retail silver coin sites became “overwhelmed with physical demand for silver” early on Monday before grinding to a halt as the buying “frenzy” for bars and coins took hold, Bloomberg reports.

Bitcoin billionaires the Winklevoss twins - who famously sued Mark Zuckerberg for allegedly stealing the idea for Facebook - both tweeted their support for WallStreetBets.

Tyler Winklevoss said the “#silversqueeze is a rage against the machine”.

Meanwhile, Cameron Winklevoss wrote that the “ramifications of a #silversqueeze cannot be underestimated”, adding: “If Silver market is proven to be fraudulent, you better believe Gold market will be next. HUGE implications especially for countries that have de-dollarized and central banks with large Gold holdings.”

It’s not unfair to suggest that until recently, pretty much every aspiring young fund manager was told to go away and read the bible of “traditional” investing – The Intelligent Investor by legendary US investor Ben Graham. This eminently readable book is as close as you can get to the holy scripture of investing, and it describes what most of us would view as a common-sense idea.

When you buy a share, you buy a stake in a business. To have any hope of making a profit, you need to understand how that business works; and whether or not its shares are overpriced or underpriced, relative to certain “fundamental” measures such as cashflows, the state of the balance sheet, and earnings. But scrub away all the technical language, and you end up with a contrarian philosophy which says buy low (cheap) and sell high (expensive). This is what most people are referring to when they use the term “value” investing.

The evolution of value investing

One of Graham’s most famous acolytes is a certain Sage of Omaha – Warren Buffett, one of the world’s richest men – who took Graham’s ideas and used them in building his giant investment portfolio, Berkshire Hathaway. But along the way, Buffett discovered that finding really cheap, Graham-style value stocks was becoming increasingly difficult. Valuations kept increasing as US stocks boomed in price, and it turned out that too many of the apparently “cheap” businesses being left behind were actually deeply flawed, with perhaps too much debt, or more importantly, no real prospects for long-term growth in profits.

So over time, Buffett developed a new mantra, which one could describe as “growth at a reasonable price (GARP)”. This involves looking for businesses and shares with growth potential that isn’t quite recognised by the market as yet. In other words, the shares aren’t necessarily cheap in the classic value sense (i.e. relative to current fundamentals), but they are cheap relative to their likely future fundamentals.

Over time this approach has paid off handsomely, and it wouldn’t be unfair to say that the single largest group of equity fund managers in existence today probably follow some form of GARP style. A modern variation is to target “quality” businesses – those with strong balance sheets, high profit margins, some form of advantageous intellectual property or brand protection (a “moat” in the parlance).

Growth or bust

But in recent decades, even this way of thinking has been critiqued by those who think that Buffett has lost his touch (often citing underwhelming share price returns for Berkshire Hathaway in recent years). Forget value, they say – instead, look at what the share price is telling you, and pick businesses in fast-growing sectors (usually, though not always, in technology).

These growth-oriented investors are less worried about whether a stock is cheap or expensive, but whether its business franchise is growing quickly and dragging along a share price that is also rising faster than the wider stock market. This group of growth enthusiasts have scored huge gains in recent decades as more money has flooded into technology stocks, especially in the US and to a lesser degree Europe, where the quoted tech sector is now worth more than the entire market capitalisation of all Europe’s banks.

Different styles for different environments

In the long term, historical data suggests that value has won out, though in more recent decades, both quality and growth styles have produced far superior numbers. But these studies also point to other historically successful strategies. For example, investing in smaller companies comes with extra risk, but evidence clearly shows that a fund invested in US or UK smaller cap equities over many decades, has beaten the wider market by a decent margin.

There is also a more curious anomaly. Stocks with the lowest day-to-day volatility – simply put, share price ups and downs – have also tended to beat the wider market. This has been called the “low” or “minimum volatility” premium, and seems to suggest that investors can succeed by avoiding the most turbulent sectors. Unsurprisingly, many funds based on this strategy have emerged, and more than a few managers using the “quality” style have incorporated it.

Step back from these debates around investment styles and a key point emerges – different styles work best at different times, and within different markets. In recent months growth and especially tech-based growth equities have massively outperformed, and value underperformed. But in recent weeks, cheap, contrarian stocks have bounced back.

What’s the lesson for investors? Many fund managers say they use multiple strategies, but in reality, many are best at one particular style. Understanding how your fund manager thinks, and how they then implement that thinking, is critical for investors. So look for a manager who is transparent about their strategy, competent at communicating what they are doing, and who knows their own strengths.

Discover more of the latest investment views and ideas from Liontrust’s experienced fund managers

What is your investment plan, and should you be worried by market turmoil? For many investors, these two modest questions will probably prompt extreme anxiety. It’s entirely reasonable to be worried by stock market volatility. But many investors are also strangely reluctant to spell out their investment strategy, beyond obvious truisms such as “produce long-term profits with the least amount of risk”. So here are six tips on how to build a plan that will be resilient even when times get tough.

If you go to a financial advisor, then they will discuss your attitude to risk in several different ways. But nearly every approach will probably start with a simple insight – how long is your time horizon? Or put more bluntly, when do you need the money? If you can wait for more than five years, and preferably 10, then a conversation about the risks and opportunities in equities can start. But if your time horizon is shorter than that, then maybe risky investments such as equities are not the right choice for you. It might make more sense to work out where you can save more money, and then consider less risky options such as savings accounts or government bonds. So that’s tip number one: when you invest in a risky asset such as a share, ask if you can afford to wait for a minimum of five years (and preferably more) before accessing the investment. If you can’t, then don’t invest in equities. Simple.

Second, if you can answer “yes” to taking some long-term risk, then consider splitting your investment portfolio into two buckets. The first is your “core” portfolio; the second your “satellite” portfolio. The core portfolio is your “leave alone” capital, where the aim is to keep it simple, lower-risk and imbued with “common sense” (more on that in a moment). The satellite portfolio is where you can experiment with more adventurous ideas.

Use your common sense

That brings us to the third tip: to practise “investment common sense” in your core portfolio. In essence, this boils down to a set of simple, tried-and-tested investment habits. Diversify between asset classes, risks and countries. Keep your costs to a minimum – one of the few certainties in investment is that excessive costs will destroy your long-term capital. Lastly, rebalance your portfolio at least once a year. The academic consensus on this is not clearcut – but a common sense approach is that once you’ve decided on your mix of investments, review the resulting portfolio every year, and if one or a number of investments have shot up in value, consider taking some profits, then reinvesting the cash you get back into your original portfolio mix, which means investing more money in the ideas that didn’t quite work out that year.

Fourth, for the core portfolio, it probably makes sense to invest using funds. Picking individual stocks can be fun, but it can also be inordinately risky. Say you decide that for the long term you want to have exposure to gold as a hedge against higher inflation or incompetent central bankers – a perfectly sensible idea. You opt to invest in a gold miner, largely because it’s an actual business, produces real profits and dividends, and is hopefully growing year on year. So you think: “That’s it – I’ve got a portion of my portfolio covered. I’m hedged against uncertainty about inflation.”

The danger is that individual businesses present what are called “idiosyncratic” risks. What happens if said gold miner is badly run, or a new mine fails to produce the projected profits? In short, you might be right to pick gold mining equities overall, but you may have picked the wrong individual miner! A fund approach tries to minimise this risk. The fund will, hopefully, contain a mix of different gold miners, minimising the idiosyncratic risk. Remember that stock picking is a risky business – if you really must indulge, then do it in your satellite portfolio where you can have more “fun”!

Cut your losses early

Point five: think creatively in that satellite portfolio. This is the pot of capital where you are willing to take more risks. Trying to time markets is an incredibly difficult exercise and probably best avoided – but if you must do it, view market turbulence and volatility as an opportunity, not a risk. If you think you have found a brilliant long-term idea, buy more of it when its share price is down and then sit tight! But also apply a ruthless discipline. Be ready to cut your losses if your brilliant bet is wrong. Talk to many of the most successful investors and they’ll tell you that they spend as much time thinking about when they are going to sell an investment as they spend researching why they bought it in the first place.

Which prompts one last related insight. You learn from your investment mistakes – so never be afraid to admit you’ve made one. Cut your losses, learn the lesson – and then move on.

Discover more of the latest investment views and ideas from Liontrust’s experienced fund managers

On 12 March earlier this year, global stock markets went into full meltdown mode. Panic erupted, as market turbulence (“volatility”, in the jargon) hit all-time highs. “Dow tanks 2,300 in worst day since Black Monday, S&P 500 bear market,” read one headline on CNBC. Every single one of the 11 stock market sectors in the US was negative that day, and the news wasn’t much better anywhere else. For example, the UK’s FTSE 250 index of medium-sized businesses also fell by nearly 10%.

Yet if one had bothered to look at other, less newsworthy numbers, a contrasting story emerged. A fund investing in a basket of leading UK government bonds (gilts) was also caught up in the sell off – but it ended the day losing just 2%. An investor who had made a very simplified diversified bet at the start of the day, putting £50 each into both US equities and “safe” UK gilts, would have ended up losing just over 6%, rather than the 10% lost in stocks alone.

This is why, were you to round up a bunch of economists and lock them in a room, the one thing they’d probably all agree on is the virtue of portfolio diversification. This advice may seem obvious, but it’s worth explaining why diversification makes such a big difference.

The graphic below is a heat map (aimed at US investors) that shows which type of assets have produced the best and worst results since 2000. It’s a complicated picture but one message comes through clearly – the reason the map looks such a mess is because no single asset manages to outperform all the time. The map isn’t quite random, but it’s not far off. The only consistent outcome worth noting is that in most years cash produced the lowest returns.

This explains why mixing and matching different types of investment makes a lot of sense. It’s here that “asset allocation” comes in. It divides the vast world of investments such as equities (and different types of equities), bonds and alternatives into different buckets of risk and returns. By having varying proportions of these different “classes” in your portfolio (depending on your investment time horizon and goals), you can potentially maximise returns whilst minimising downside risk.

A prevalent strategy foreshadowed earlier is called the 60/40, and sees an investor put 60% of their money into equities and 40% into bonds. This has been shown to produce decent risk-adjusted long-term returns (with lower risk levels) than, for example, a 100% equities portfolio. Better still, you can increase diversification within these bigger buckets (equities, bonds and alternatives) by mixing and matching investments in small and large businesses or different types of stocks – for instance, combining companies that pay out lots of dividends with faster-growth companies that might not pay any dividends at all.

There’s another way to diversify. While the heat map looks at different types of assets such as small and large businesses, property funds, emerging market stocks and corporate bonds, another interesting study, this time by giant US hedge fund Bridgewater Associates (founded by the legendary – and vocal – Ray Dalio) looked at geographic diversification over many decades.

The Bridgewater analysts took two strategies. The first was to keep picking the market of a country that they thought would do well that year, and invest in it. The other was to build a diversified basket of stocks, split between all markets equally. After studying the data over many decades, the analysts compared the results.They found that the second strategy was the better bet.

Although some markets do consistently outperform others (for example, US equities have been consistent winners in recent decades), by and large, a winner one year was just as likely to be an equally big loser the next. Instead, it made more sense to buy a basket of properly diversified stocks from different countries in equal proportion.

Geographical diversification is especially important for British investors – many studies show that most active private investors (and their advisers) have UK equity exposure of at least 20% or 30% at a minimum in their portfolio (and in some cases it’s closer to 100%). Yet if one looks at a big global benchmark index such as the MSCI World (which tracks the total market of all equities), UK stocks only account for about 5% of total market capitalisation. In other words, if you stick to UK stocks alone, you are missing out on 95% of the global stock market.

Discover more of the latest investment views and ideas from Liontrust’s experienced fund managers

The coronavirus pandemic has triggered countless job losses worldwide, with consumer spending at a standstill and thousands of businesses set to be shuttered forever.

Yet US stock markets are near all-time highs and other world markets are recovering steadily. So what is behind the unexpected disconnect between Wall Street and the high street?

What has happened?

Despite the US approaching its steepest downturn since the Great Depression, the country’s stock indices are nearing all-time highs, with valuations closer to the 2000 dot-com bubble than the depths of 1929.

Indeed, “having risen a whopping 35% from a late March trough, stocks looked set to kick off June with more gains”, Reuters reports.

Why are stocks rebounding?

Economists point to a range of different drivers for investors’ confidence.

Diane Swonk, chief economist at Grant Thornton, believes that “many investors still see the world through pre-pandemic-tinted lenses”.

Many expect the recovery to follow similar patterns to those that came after previous recessions, ”and don’t see the much larger and longer-term challenges created by Covid-19”, Swonk writes in a Foreign Policy article that compiles various experts’ views.

Mohamed A. El-Erian, chief economic advisor at Allianz, has a different take. According to El-Erian, investors believe - falsely - that right now they simply can’t lose.

“They win if - based on the notion that stock markets can see past the short term - the economy quickly returns to normal; they also win if it doesn’t, given that the US Federal Reserve has repeatedly demonstrated that it is both willing and able to backstop markets,” he writes.

Unfortunately, this belief fails to take into account the economic and business fundamentals of each company - and many companies are going to continue to struggle, even after coronavirus lockdowns in countries across the globe are fully lifted, El-Erian says.

The New York Times, meanwhile, attributes the broad rise to “bargains and bravery”.

Or to put it another way, investors in search of good deals are buying while the market is low.

“We will never get these prices again,” said Cole Smead, a portfolio manager at the Smead Value Fund.

There is also a “fear of missing out,” the newspaper adds. “As shares rise, professional money managers feel pressure to buy stocks to protect their reputations.”

According to Business Insider, the reason stock markets are rising now is that investors think the economy has already bottomed.

“Investors think April was the low point for the economy and things could start to improve – or at least not get worse – from here,” the news site says.

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What does a rising stock market tell us?

“No one has a crystal ball,” says David Taylor, business reporter for Australia’s ABC News. “You could argue, however, that the share market is the closest you might get to one in this world.”

The reason for this, Taylor says, is simple: “The share price of a stock represents what analysts believe the company will be worth in a few months’ or year’ time. It’s not what it’s worth based on its earnings today.”

But what a rising stock market doesn’t speak to is the health of an economy.

“Wall Street types like to believe that the price of the stocks they peddle somehow represents the value of a business or the state of the economy. Nonsense,” economics reporter Eduardo Porter writes in Foreign Policy.

“It would be a mistake to conclude that markets believe this recession will be V-shaped, with the economy ready to bounce back sharply in a few months. Markets have no clue. And it likely won’t be so rosy,” he concludes.

Investors are often told – sometimes jokingly – that the key to making money from the stock market is to “buy low, sell high”. On the other hand, we’re also told that active trading is for mugs – “buy and hold” is best. In effect, it’s “timing the market” versus “time IN the market”. So which is best?

Timing isn't everything

A while back, some US researchers at the Schwab Center for Investment Research looked at this debate and put some hard numbers on the cost of becoming overconfident in your trading skills. They looked at what would happen under various investment styles to an investor who received $2,000 every year for 20 years to invest in markets, a total of $40,000. The perfect timer who put money into the market at its low point every month ended up with $387,120. Sounds great – until you realise that the autopilot investor who invested money on the same day every month, with no sweating about market timing, boasted a return of $362,185.

In 1998 meanwhile, researchers at the University of Utah and Duke University reviewed the performance of 132 investment newsletter portfolios – whose entire existence is dedicated to market timing – between 1983 and 1995. It was a good period for the US market, and the average return the newsletter writers made was 12% a year. Yet if you’d just stuck your money in a bog standard US equity markets fund instead, you’d have got 16.8% a year.

Perhaps the managers running the really big money might do better than the newsletter writers? Let’s see. Over the last few decades, we’ve seen the emergence of hedge fund managers as the new masters of the universe, managing countless tens of billions of dollars. The idea behind hedge funds is that these traders can deploy any number of ideas and strategies to “beat the market” – but for most of them, some element of market timing is crucial.

Hedge funds use their research and intelligence to time a purchase so that they can make the maximum return. It sounds great. The only problem is that countless studies have shown that most hedge funds have consistently failed to sustain outperformance. If these traders with their huge resources struggle, what hope is there for the rest of us with a normal, non-master of the universe job?

The power of patience

“Buy and hold” investing may not allow you to charge the large fees that hedge funds do. However, it can mean both a calmer life and better returns than if you try to time your exposure to markets. “Buy and hold” is all about being patient and maximising your time in the market. This builds on the understanding that while markets can be volatile, if you have a sufficiently long-time frame, then you can ride out the ups and downs in sentiment.

Better yet, this long-term, patient approach can help to prevent you from making many common mistakes. Chasing performance – buying assets once they have already done well – is just one trapdoor which many investors fall down. The Economist magazine once looked at how two investors would have fared between 1900 and 2000, had they started with just $1 each. At the start of each year, the first investor – with impeccable timing – put all of her money into that year’s best-performing asset class. The second investor – with the benefit of hindsight – put his money into the previous year’s best performer.

What was the result? The first investor ended up with a net worth of more than $1.3 quadrillion. The second – the performance chaser – turned his dollar into just $783. And this is the problem with market timing – you are likely to choose the wrong investments just as often as you choose the right ones.

Underpinning all this is the commonsense idea that you need to base your investment decisions on patient research, and to diversify your risk. Warren Buffett is arguably the world’s greatest investor, and has attracted many plaudits for his undoubted acumen and ability to stay calm and invest when those around him are panicking. But even he has argued that for most investors a straightforward, diversified bet on a basket of large equities is probably safer. Moreover, what Buffett’s own experience does teach us – through the success of his giant Berkshire Hathaway investment vehicle over the last four decades – is that investing in good quality, well-run companies, with decent balance sheets and sound business principles, is not likely to go too wrong over the long term.

In short, when it comes to long-term investing, it makes a lot more sense to put your faith in “time in the market”, than in “market timing”.

Discover more of the latest investment views and ideas from Liontrust’s experienced fund managers

The US and Iranian governments are at odds again after Donald Trump threatened military action against the Middle Eastern state.

The US president posted the warning to the Iranian navy on Twitter on Wednesday, saying: “I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.”

The president seemed to be reacting to a confrontation on 15 April, when the US military said numerous small craft from the Islamic Revolutionary Guard Corps (IRGC) sped within yards of US warships in the Persian Gulf in a series of “dangerous and harassing approaches”.

“We don’t want their gunboats surrounding our boats, and travelling around our boats and having a good time,” Trump told reporters. “We’re not going to stand for it… They’ll shoot them out of the water,” reports Sky News.

Trump’s declaration changes the rules of engagement for US vessels, which normally have to be under direct threat to use lethal force.

Why now?

CNN has a theory as to why the president’s threat came when it did. “Roughly a half hour before Trump tweeted Wednesday, Fox & Friends, which Trump regularly watches, aired a segment about the incident, as well as a report on Iran launching its first military satellite into orbit,” it said.

While the hostilities between the two countries far predates the Covid-19 pandemic, The New York Times speculates that the current rise in tensions may not be totally disconnected.

“At home, the Iranian government and Mr. Trump’s administration have been criticised for mismanaging the response to the virus, and leaders in both nations may calculate that there is an advantage to reigniting confrontations with old adversaries,” the newspaper says.

As the oil industry relies so heavily on tankers passing freely from oil-producing gulf nations through the Strait of Hormuz, and out into the open ocean, any chance of disruption in the region raises the price of oil reliably.

With the oil industry reeling from the freefall in prices caused by the now-ended oil war, and more significantly by the demand-vaporising coronavirus pandemic, prices suddenly rebounded on Wednesday following Trump’s tweet.

What has the reaction been?

Iran responded with its own threat, saying they are prepared to destroy American warships if their security is threatened in the Persian Gulf.

The head of the IRGC, Hossein Salami, said: “I have ordered our naval forces to destroy any American terrorist force in the Persian Gulf that threatens security of Iran’s military or non-military ships. Security of the Persian Gulf is part of Iran’s strategic priorities.

“I am telling the Americans that we are absolutely determined and serious in defending our national security, our water borders, our shipping safety, and our security forces, and we will respond decisively to any sabotage. Americans have experienced our power in the past and must learn from it.”

Despite Iran’s threats, Trump’s allies have supported his message. The vice-chairman of the US Joint Chiefs of Staff, General John Hyten, said Trump’s tweet was a useful warning to Iran.

He said Iranian naval activity last week “goes right along with the harassment from the fastboats,” he said. “You put those two things together and it’s just more examples of Iranian malign behaviour and misbehaviour,” ITV News reports.

“The president issued an important warning to the Iranians,” David Norquist, the deputy secretary of defence, said at a Pentagon news conference when asked about the tweet.

“What he was emphasising is, all of our ships retain the right of self-defence.”

But General Abolfazl Shekarchi, a spokesperson for Iran’s armed forces, accused Trump of “bullying” and said he should focus on the US coronavirus problem, says Sky News.

Why are the two countries so hostile to each other?

Trump’s strident announcement was consistent with his administration’s “maximum pressure” Iran approach. He has talked openly about restoring deterrence against the Middle Eastern nation, and considers the previous administration’s purportedly lenient approach to have allowed Tehran to become too assertive.

It was in this vein that the US killed Iranian major general Qasem Soleimani early this year.

Specifically, as a presidential candidate in 2016, Trump said at a rally that when Iranians “circle our beautiful destroyers with their little boats… they will be shot out of the water”.

“Mr Trump has frequently said any US retaliation to serious Iranian actions would be swift and significant,” reports the Financial Times. “But US defence officials are concerned that Iran is prepared to bear losses from any US military response if it helped Tehran achieve its strategic goal of forcing the US from the region.”

Major global oil producing nations will hold a virtual meeting today in an attempt to wrest control of freefalling crude prices.

Opec+, which includes members of the Organization of the Petroleum Exporting Countries (Opec) such as Saudi Arabia, as well as non-members including Russia, is due to begin talks at 2pm UK time.

The meeting would normally be held in Vienna, where the organisation is headquartered, but the coronavirus pandemic precludes it.

The stakes are high, and oil producers - companies and nations - will be hoping a deal will be announced afterwards that will see production cut globally, thereby reducing supply, and as a result, raising the price.

Will the US attend?

While Saudi Arabia and Russia, two of the world’s three largest oil producers, will be negotiating on screen, the largest - the US - will not. The latter is not a member of Opec+, because the organisation exists to set the market, and this flies in the face of American free-market principles.

Opec+ functions by controlling production, but Washington lacks the legal right to close a US company or limit its output. If they tried, this “would most likely be challenged in court by oil companies”, Forbes says.

Each of the three protagonists wants the price of oil to be raised, and hence oil production to be curbed. They cannot agree to do this, however, because Russia is dissatisfied with the market conditions as they stand: North American oil - particularly shale - companies are benefiting from the high prices maintained by Opec+ members cutting production, without having to cut production themselves.

This is how the US has recently come to hold such a large share of the global oil market. When Russia refused to continue to make further sacrifices to prop up prices while the US benefited, the oil war began.

The reality of the price war, however, is that the US shale industry has massively retracted naturally. The hydraulic fracturing - or fracking - required to extract shale oil is expensive, and cannot be sustained when oil fetches so little in the market.

“This week the Energy Information Administration predicted that by summer the United States would once again become a net importer of oil, as domestic production contracts and overseas markets shrivel,” reports The Washington Post.

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What does Russia want?

Moscow wants a more long-term commitment from the US that it will stop free-riding on high crude prices, and has made it clear that the current retraction of US oil is not enough.

“These are totally different types of cuts,” said Vladimir Putin’s press secretary Dmitry Peskov to reporters in the Russian capital on Wednesday. “You compare total reduction in demand with cuts aimed at stabilising the global markets. It’s like comparing apples and oranges. There is a difference.”

Nevertheless, while Opec+ can hurt individual shale companies in the short term, it cannot eradicate the industry entirely. Shale will simply bounce back when prices rise again.

“If Moscow’s - or Riyadh’s - strategy was to kill the industry, it would almost certainly have failed,” writes Christof Ruehl in Bloomberg. “US finance thrives on such disruption. Even now, American shale assets will be mothballed and change hands, debt will be restructured, and hydrocarbons will flow, quite possibly at a more efficient cost per barrel. Sources of financing may change. The technology is here to stay.”

What does this mean for the rest of the world?

Low oil prices may be good for the global economy as it seeks to recover from the catastrophic recession-inducing effects of the Covid-19 pandemic, but the opposite is the case for Russia and Saudi Arabia’s economies, which rely heavily on their oil industries

As such, they are likely to reach an agreement soon, and that could be today.

“Hopes for the meeting rose after media reports suggested Russia was ready to cut its output by 1.6 million barrels per day and Algeria’s energy minister said he expected a ‘fruitful’ meeting,” Reuters said, reporting that US crude futures rose as much as 6% this morning on the news.

US stocks fell by almost 10% on Thursday, concluding their worst day since 1987 and capping a day of global freefall. European markets also posted their worst one-day drop in history.

Central banks in the UK, Europe and US all took action, but they failed to reassure investors panicked by the coronavirus outbreak - and a speech on Wednesday night by Donald Trump, intended to calm nerves, instead deepened anxiety.

In his address, Trump announced a 30 day ban on Europeans travelling to the US, beginning today, and the news sent shock waves through the airline industry and wider economy, plunging markets into bear territory.

“This was the most expensive speech in history,” said Luca Paolini, chief strategist at Pictet Asset Management. “Investors are voting with their feet, and I can’t blame them.”

Despite the UK being spared the new travel restrictions - it applies only to the 26 members of the Schengen area - the FTSE 100 index was mired in losses, falling by nearly 11%, a loss of 639 points, marking its second-worst day of all time.

In London, as in the rest of the world, the damage was not limited to the travel industry. “Every single share fell, in a bigger wipeout than Monday’s slump,” says The Guardian.

Insurance giant Prudential and asset manager Standard Life Aberdeen both lost at least 16%, Cineworld shares fell by more than 20%, Barclays was down 17%, while mining giants Anglo American and Glencore shed 18% and 17% respectively. In the US, Morgan Stanley, Citigroup and Wells Fargo all lost around 15% of their value.

Oil prices, which have been falling steadily as Covid-19 hit demand, but crashed at the start of this week as a dispute between Russia and Saudi Arabia heralded an increase in supply, tumbled again - signalling that the US travel ban is expected to play havoc with the travel industry. Brent crude was down 7.2% at $33.22 a barrel.

Gregory Daco, chief US economist at Oxford Economics, also placed much of the blame with the US president.

“Markets reacted negatively to what was perceived as a solemn but confused speech that placed blame on other nations, omitted to focus on immediate actions to relieve the most affected individuals, and lacked in concrete fiscal and health measures to address the economic and financial impact of the virus,” he said.

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In response, Christine Lagarde said the European Central Bank would buy an additional €120bn (£107bn) in bonds before the end of the year, on top of their current €20bn (£18bn) per month, but this quantitative easing failed to reassure investors who had hoped she would also lower interest rates further from their record low of -0.5%.

Lagarde seemed to imply that the responsibility for keeping the Italian economy afloat lay with EU governments, not with the ECB, and within minutes of her speech, investors started fleeing from Italian bonds, concerned that the country, now in almost total lockdown, would not receove sufficient support.

“The week’s intense rout suggested investors were bracing themselves for a worst-case scenario,” says The Financial Times, “including a global recession, the lockdown of large urban centres and a severe credit crunch.”

“Markets are at a breaking point,” said Neil Wilson, chief market analyst at Markets.com. “No one knows what a total economic shutdown, however temporary, looks like.”

Markets around the world dropped precipitously yesterday on fears of a global recession prompted by the coronavirus outbreak and on an oil price war between Opec and Russia. Losses were the worst since the 2008 financial crisis and yesterday was dubbed “Black Monday”.

In London, the FTSE 100 had dropped by nearly 8% at the close of trading, while in the US the main indexes were down by more than 7%. The main stock markets in continental Europe also closed around 7% down – and they followed a pattern set earlier by Asian traders.

The US markets fell so steeply when trading opened yesterday morning that they were automatically suspended for 15 minutes when a “circuit-breaker” came into effect, designed to halt panic selling.

The fall in London meant the country’s top firms were worth around £125bn less at the close of trading than they had been yesterday morning, notes the BBC.

The price of Brent crude oil plummeted by almost 33% before recovering a little to close 20% down. It was the worst oil price crash since the 1991 Gulf War. The slump came after Russia rejected an Opec proposal to cut supply to cope with the lower demand prompted by the coronavirus outbreak.

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The coronavirus outbreak has led to a huge reduction in travel, manufacturing, and other economic activities, all of which have impacted the world’s demand for oil.

With supply far outstripping demand, the price of oil is falling fast, and amid alarm over a further collapse, the 14 countries that make up the Organisation of the Petroleum Exporting Countries (Opec) convened in Vienna yesterday to coordinate a response.

The solution they reached was to take 1.5 million barrels per day off the market, reducing supply with the aim of pushing up prices that are now hovering around $50 a barrel, down from nearly $60 two weeks ago.

“The Covid-19 outbreak has had a major adverse impact on global economic and oil demand forecasts for 2020,” Opec said in a statement, “particularly for the first and second quarters.”

There is already an existing Opec reduction of 2.1 million barrels per day in place, and that is due to expire at the end of March; yesterday’s conference proposed keeping this cut extended to the end of the year in addition to the new one.

“It would bring the group’s overall output reduction to 3.6 million bpd or about 3.6 percent of global supplies,” says Al Jazeera. “The last time Opec reduced supplies on such a scale was in 2008 when it cut production by a total of 4.2 million bpd to address slower demand because of the global financial crisis.”

However, the agreement has a condition, namely that Russia, which is not a member of Opec, agrees to cut their own production too, and Moscow is proving resistant to attempts to convince them to do so.

Russia and other non-Opec members, which alongside the organisation are referred to as Opec+, are expected to shoulder a third of the cuts, and reduce their output by a total of 500,000 bpd.

Moscow seems to be weighing up the pros and cons of signing on to the agreement. Maintaining production while others cut theirs is a reliable way of increasing long-term market share, and with coronavirus rampant in the Middle East, they may think if they hold their nerve then Saudi Arabia-led Opec may cut production without them.

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On the other hand, failing to act in tandem with Opec could mean the end of their involvement with Opec+, a prestigious affiliation that brings influence over global oil policy.

The Washington Post reports that “the Russian representative to Opec, Alexander Novak, walked out of a preliminary meeting in Vienna on Wednesday, when the cuts were being discussed. According to Russian press reports, he is expected to return with Moscow’s answer on Friday.”

Gary Ross, founder of Black Gold Investors, believes that, in the end, Russia will be compelled to do what it needs to do to prop up the price of oil - a commodity integral to their economy.

“Opec+ have little choice but to cut output substantially given the virus-related demand losses,” he said. “The Saudis have accounted for over half the officially agreed cuts and they will lead the way with additional cuts and the others, including Russia, will join because it is overwhelmingly in their economic interests.”

Oil prices have climbed above $70 a barrel on fears of retaliation by Tehran for the assassination of the Iranian general Qasem Soleimani in a drone strike in Iraq.

Brent crude rose 2% to hit an eight-month high of $70.73 a barrel in Asian trading yesterday - a level not seen since last autumn when it surged briefly following an attack on a Saudi processing complex. The rise extended gains on Friday following the drone attack.

Investors fear that further conflict could disrupt oil supplies, says The Times, because the Middle East accounts for nearly half of the world’s oil production, while a fifth of the world’s oil shipments pass through the Strait of Hormuz.

Will oil prices continue to rise?

Commentators at Citibank expect prices to stay high because of fears over a retaliation and the BBC points out that “attacks on US oil company pipelines, or where Western and American oil companies have invested in new exploration, would drive crude higher”.

Analysts at ING point out the tension risks “disruptions to oil supply in the Middle East, be it through the Iranians disrupting Strait of Hormuz oil flows, or through attacking energy infrastructure of US allies in the region”.

However, cautions CNN, other analysts said that they expect a limited response that won't significantly disrupt crude supplies, keeping a lid on oil prices.

Paul Donovan, the chief economist at UBS Global Wealth Management, told The Guardian that the global market’s focus on the oil price after the attack is “a rather 1970s reaction” that is “perhaps not appropriate for 2020”.

Any resolution of the conflict between Iran and the US will de-escalate the situation and prices will deflate, they say.

Will the rise affect petrol prices?

The RAC says a prolonged oil price rally would add “at least 2p” per litre to the price of petrol, weeks after the first rise in six months in December.

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Financial markets bucked widespread political turmoil and mounting fears the global economy could be overheating to post record highs in 2019.

Looking ahead to the next twelve months, “investors are expecting 2020 to bring further rising asset prices and lively merger activity” says Graeme Wearden in The Guardian “but Brexit, the US presidential election and the US trade war with China could all spring nasty surprises over the next 12 months and give the long-running bull market a jolt.”

“For the professional prognosticators and market mavens of Wall Street and beyond, there is at least one easy prediction to make about the next 12 months: Investors are going to earn less. A lot less, probably” says Bloomberg.

“’The double-digit returns of 2019 will be hard to repeat’ is a phrase littering almost every investment outlook for global markets in 2020” says the financial wire service, and “despite the trade war, political turmoil and more, virtually all major assets just posted a once-a-decade performance, and even uber-bulls know the chances of repeating the feat are slim”.

Listen to The Week discussing investing in 2019 in our podcast

On Wall Street, stocks “face several obstacles to growth in the new year” says CNN. “The Federal Reserve has stopped cutting interest rates. The economic jolt from tax cuts has run out. Despite some progress, the United States still doesn't have a trade deal with China” reports the news networking meaning stocks are entering 2020 “with a bit less of a tailwind than they had in 2019”.

“Investors still have plenty to be optimistic about, though” it adds.

In the UK, warnings about continued economic stagnation in 2020 have not stopped stock market experts from predicting the FTSE 100 could break through the 8,000 mark for the first time.

“With Boris Johnson pledging to take Britain out of the EU on January 31, the US presidential election in November, and trade tensions ebbing and flowing, it looks set to be an eventful year” says This is Money but having surged by 12.1% in 2019 and 39.3% in the last decade, “analysts believe the blue-chip benchmark will break records”.

“Investors will realise UK shares trade are at low valuations and flock back to sectors that performed poorly in 2019 – utilities, banks, insurers” says Helal Miah, analyst at The Share Centre.

AJ Bell’s Russ Mould says “Brexit must still be resolved and doubts hover over the health of the global economy. Were the UK to strike a trade deal with the EU, Washington and Beijing to settle their differences and governments abandon austerity, the outlook for next year could look very different.’

Yet The Daily Telegraph warns that “when consensus emerges among experts about the direction of stock markets – it is often a signal that something unexpected is about to happen”.

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The FTSE 250 leapt yesterday to a new record high amid talk of a “Boris bounce”.

As investors breathed a sigh of relief over the election of Boris Johnson in last week’s general election, the domestically focussed index jumped more than 400 points - almost 2% - to 21,920. That meant its members were worth £7bn more than they were at close of trade on Friday night.

Meanwhile, the FTSE 100 index was on track for its biggest one-day bounce since 2016 and the aftermath of the EU referendum. The blue-chip index was up 2.6%, or 190 points, at 7,543, as investors continued to drive stock prices higher, meaning almost £50bn had been added to the index’s value.

Global heavyweights enjoyed some of the biggest gains, explains Sky News, with British American Tobacco, insurer Prudential and commodities giant Glencore among the biggest risers. Lloyds Banking Group and Barclays also enjoyed strong increases.

Analysts said the Tory election victory, and the clarity they felt it offered on Brexit, was responsible for the buoyancy. “The ‘Boris bounce’ is providing a late turbocharge”, says Richard Hunter, Head of Markets at interactive investor, told The Guardian.

“It’s still the relief playing out,” said Markets.com analyst Neil Wilson.

“It’s absolutely on the mark with what we had expected; there has been a lot of pent-up demand,” Wilson continued. “Uncertainty over Brexit has gone and the Corbyn danger has evaporated.”

According to City AM “a phase one US-China trade deal” also “helped ease long term uncertainties that have consistently weighed on markets”.

Joshua Mahony at IG Group agreed, telling Proactive Investors: “UK markets are surging higher once again today, with positive sentiment over an impending US-China trade deal continued to help drive stocks higher.”

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There has been a mixed reaction to news the US and China have agreed an initial “Phase One” outline to end an 18-month trade dispute that has rocked global markets.

Washington’s top trade negotiator, Robert Lighthizer, said on Friday that China has agreed to buy up to $200bn in additional goods and services over the next two years on top of the amount it purchased in 2017. The agreement would also require China to make “structural reforms and other changes to its economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange”. In exchange, Washington would roll back some tariffs on Chinese goods.

Reuters reports that “US markets have gyrated on rumours and leaks about the trade deal in recent months, but were muted on Friday on news it had been agreed”

While Donald Trump hailed the it as an “amazing deal”, details remain “largely unknown, leaving close US-China watchers to describe it as ‘He said, Xi said,’ and others wondering what exactly is included in a limited agreement among the economic superpowers” reports CNN.

Beijing’s reaction has been “more muted” says The Guardian, and “neither side offered any detail on what the Chinese reforms might be, leading to fears that the deal will fail to resolve the key underlying conflict between the two superpowers”, says the paper.

The deal with China “offered Trump an opportunity to claim that he is making progress toward fulfilling a major campaign promise as he gears up for reelection”, says the Washington Post. “But the pact, which needs to be officially signed and is only the first part of a long-running negotiation, still leaves a huge cloud over the US business community, which has come to rely on China for low-cost manufacturing labor and know-how”.

USA Today says “the outcome of the broader talks could have enormous consequences for the US economy, Trump's reelection next year and the long-term economic ties between Washington and Beijing. China is already reshaping its economy to focus on other partners and to bolster domestic production, reducing its reliance on American markets”.

But after looking at the preliminary agreement, economists and investors believe neither side is any closer to realising its goals.

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US stock markets reached record highs in early trading yesterday, as optimism over the prospect of a US-China trade deal rose again.

On a historic day on the markets, the S&P 500 rose above 3,066.95 points and the Nasdaq also hit a new record of 8,444.99 points.

“That's nothing new,” says CNN. “Stocks hit new records last week. But this time the Dow is joining the record-setting club.” The Dow Jones was up 0.46% in early trading.

Fox News reports that the spikes came after the Chinese Foreign Ministry announced that Donald Trump and Xi Jinping have remained in contact while negotiators agree the final language for the “phase one” of the trade agreement between the two natios.

“Stock Market hits RECORD HIGH. Spend your money well!” tweeted Donald Trump.

Pierre Veyrett, technical analyst at ActivTrades, told The Guardian this optimism is “likely to keep on supporting stock prices around the globe this week, especially if US and Chinese data is in line with or continues to beat expectations like last week’s solid non-farm payroll reports”.

Markets around the world rose in response to the Wall Street lead. India’s stock market closed at a new record high, Britain’s FTSE 100 gained more than 1% and the pan-European Stoxx 600 index reached a 21-month high.

However, less positive news for the US came in the form of factory orders data, which fell by 0.6% in September - worse than the 0.1% fall in August, and also worse than the 0.5% decline predicted by experts. The news dampened excitement among traders.

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The US central bank, the Federal Reserve, announced yesterday that it is cutting US interest rates by 25 basis points for the third time this year, but signalled that the easing of monetary policy would likely be put on hold imminently.

Jerome Powell, the Fed chair, said that the rate cut was in response to a global economy that continues to face perils. However, he added that the potential of a “phase one” US-China trade deal, as well as the reduced risk of a no-deal Brexit, had reinforced thinking that continued monetary easing may not be necessary.

“We believe that monetary policy is in a good place,” Powell said. “We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” he said.

The Fed, he said, would cut its key overnight lending rate by a quarter of a percentage point, to a target range of 1.50% to 1.75%.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” said Powell.

Markets focused on an official statement accompanying Powell’s news conference, in which a crucial phrase, which dropped the assertion that it would “act as appropriate to sustain the expansion” - a line that is taken to imply continued rate cuts. Instead, it said it would “assess the appropriate path” for rates, indicating that investors believed the Fed would pause easing for now.

“It’s pretty much what was expected,” said Jim Powers, director of investment research at Delegate Advisors. “The more important outcome is they removed the phrase ‘act as appropriate.’ It looks like the market is taking that to mean that there will be a pause in the declining rate path they were on beforehand. That’s what was expected, and that’s generally a good thing.”

Ron Temple, head of US equities at Lazard Asset Management, said: “The Fed telegraphed today that rate cuts are over for now, and markets seem to agree.”

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Consistent rate cuts of this nature are rare in times of economic growth, and the US is enjoying historically low unemployment, solid wage growth and suitable household purchases.

“The Fed chairman has been under pressure all year by Trump to continue juicing the economy by sharply cutting interest rates, which are already at historically low levels, as he seeks to bolster his chances of winning next year's election in 2020,” reports CNN Business. The news of a third successive cut will go down well with the president, but implications that Powell will now pause may put them on a collision course.

By cutting now the central bank is reducing its toolkit of measures should the economy slow, and there are signs that a potential slowdown may already be happening. Data released on Wednesday by the Commerce Department revealed that the US economy’s growth rate has continued to slow.

This has led some to conclude, despite investors’ analysis of Powell’s statement yesterday, that further rate cuts are likely. “On balance, we still anticipate that a further deterioration in the incoming activity data will persuade the Fed to change tack and cut interest rates one final time in December,” said Paul Ashworth, the chief US economist at Capital Economics.

Addressing concerns that continued rate cuts could bring inflation to unacceptable levels, Powell argued the threat was unlikely. “I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation,” he said.

The S&P 500 index opened at a new all-time high after positive comments from both sides of the US-China trade war.

On an upbeat day on Wall Street, the S&P 500 gained 15 points or 0.4% to hit 3,038 points, a new record level.

Meanwhile, the Dow Jones industrial average opened higher, up 112 points or 0.4%, while the tech-focused Nasdaq index gained 0.5%.

US President Donald Trump had earlier told reporters he expected to ink a significant part of the trade deal with China earlier than expected.

“We are looking probably to be ahead of schedule to sign a very big portion of the China deal, we’ll call it phase one but it’s a very big portion,” he said.

Earlier, China’s commerce ministry had said that technical talks about the phase one trade deal text with Washington were “basically completed”.

Neil Wilson of Markets.com said that stock market “bulls” were pushing Wall Street higher. He said it’s a “remarkable achievement against faltering corporate earnings, a festering (if not quite total) trade war, and softer macro data everywhere you look”.

Urging a degree of caution, he added that: “the bar on a US-China trade deal had been set so low that the market seems content with this pretty puny agreement”.

The Guardian was also measured in its assessment of the deal. “This is only for a phase one trade deal, which might reset relations between the two sides and could lift some tariff,” it said. “A full-blown agreement, tackling stickier issues such as forced technology transfers and China’s subsidies, is some distance off.”

However, Reuters points out that sentiment over the positive signs around the trade dispute was not the only factor at play on the markets. It explains that “rising bets on a third rate cut by the Federal Reserve” have also fuelled optimism among Wall Street traders.

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Apple revenues are continuing to climb despite a drastic drop in iPhone sales.

The tech giant has posted a 1% increase in revenue to $53.8bn (£44.2bn) for its third financial quarter, narrowly beating the $53.4bn (£43.9bn) forecast by Wall Street analysts, the Financial Times reports.

Although net profit dropped by 12.8% to $10bn (£8.2bn), shares in the company jumped by over 4% in after-hours trading, the newspaper notes. As of 10am UK time, Apple shares were worth $208.78 (£171.67).

It means that Apple is closing in on a market capitalisation in excess of $1trn (£820bn). It’s a feat the company initially achieved exactly a year ago, though lacklustre sales of the current iPhone XS and XR range saw share prices tumble towards the end of 2018 and into the new year.

So what’s driving sales?

Today’s report suggests that Apple is no longer relying on the once-dominant iPhone to bolster its quarterly earnings.

For the first time since 2012, iPhone sales constitute less than 50% of the company’s overall sales, the BBC says. Device sales dropped by $741m (£609m) year-on-year for the quarter that ended on 29 June.

While iPhone sales are “continuing to shrink”, the BBC’s Dave Lee says Apple’s revenues have been bolstered “thanks to booming success with its Wearables, Home and Accessories category”.

These include products such as the Apple Watch, HomePod smart speaker, Apple TV (pictured top) and wireless AirPod earphones.

Services such as Apple Music and App Store sales have been particularly lucrative for the company. According to TechRadar, more than 20% of Apple’s net sales for its third quarter were from services.

“Outside of the iPhone, the company is growing at 17%,” Apple’s finance chief Luca Maestri told the FT.

“When you combine services and wearables, categories that almost didn’t exist a few years ago, you combine those two businesses and they are already approaching the size of a Fortune 50 company, growing in strong double-digits,” he said.

The focus on services won’t come at the expense of the company’s hardware ambitions, insists Apple CEO Tim Cook.

He says the company has its “strongest hardware portfolio ever and we have new products on the way”, The Daily Telegraph reports.

How are its rivals faring?

Samsung, one of Apple’s fiercest rivals in the tech world, has endured a more difficult financial quarter.

It posted a 56% drop in profits during its most recent quarter, bringing total gains down to 6.6trn won (£4.6bn), which is the lowest point since the Galaxy Note 7 fire fiasco in 2016, The Verge reports.

Huawei, meanwhile, fared significantly better than its rivals. The Chinese tech giant recorded net profit margins of 8.7% for its recent financial quarter, despite “facing political headwinds”, CNBC notes.

The company was blacklisted by Donald Trump in May over fears the company may be “providing a back door for Chinese intelligence agencies to eavesdrop on communications”, The Sunday Times reports.

But Huawei is hugely popular in its home market, a region that both Apple and Samsung have struggled with in recent years owing to the rising cost of their products.

After months of gains and investor interest, bitcoin is on course to end the month at a loss for the first time since January.

Bitcoin values have frequently dipped below the $10,000 (£8,050) mark over the past few days, just two weeks after prices surpassed the $13,000 (£10,460) threshold for the first time this year, according to ranking site CoinMarketCap.

Despite trading close to the $11,000 (£8,850) mark at the start of the month, values may continue to sink below $10,000 over the coming days, the website reports. Bitcoin is currently trading at $9,820 (£7,900), as of 2:30pm UK time.

As is often the case in the cryptocurrency market, bitcoin’s price fluctuations have also had an impact on its rivals.

CoinMarketCap’s figures show that Ethereum, which ranked second behind bitcoin in the market, has slumped from its July high of $317 (£255) to today’s price of $217 (£175).

Ripple, a banking-focused cryptocurrency that sits third in the rankings, has also endured a difficult month. It’s currently valued at $0.31 (£0.25), down from the month’s high of $0.41 (£0.33), the ranking site says.

What caused prices to tumble?

The losses appear to have occurred shortly after a hearing where David Marcus, president of messaging products at Facebook, fielded questions about the social media giant’s upcoming cryptocurrency, called Libra, from US lawmakers.

According to The Independent, one of the senators told Marcus that Facebook was “delusional” to believe people would trust it with their money, while another said the company’s agenda promotes “flagrant displays of bulls***”.

Other senators, meanwhile, raised concerns about the cryptocurrency being exploited by “criminal organisations to facilitate money laundering, or even finance terrorist activities”, the news site says.

The hearing appears to have “spooked” bitcoin traders, the Daily Express says, prompting mass sell-offs that saw the cryptocurrency’s value plummet.

Can values recover?

Possibly, but the next few days could be crucial for the virtual coin.

If bitcoin values are able to surpass and - critically - stay above the $10,000 mark over the next few days, the bull run that has propelled the digital currency throughout the year may be back on track, says cryptocurrency news site CoinDesk.

But all signs point to a “bearish” trend, the site adds, with prices looking set to slide as the month comes to a close.

The bitcoin bull run is back in full swing, bringing to an end the brief period of turbulence during which the cryptocurrency’s value declined sharply.

Bitcoin was trading at $12,970 (£10,400) as of midday UK time, approaching the highest value it has achieved so far in 2019, according to figures from CoinMarketCap.

The virtual coin broke through the $10,000 (£8,020) mark - a psychological threshold that, once surpassed, drove investors to up their stash of bitcoin - in June and prices continued upwards for several weeks, the ranking site reports.

However, values began plummeting from a high of $13,770 (£11,040), a record for the year, at the end of June to a low of $9,810 (£7,820) a week later. While values have yet to return to the $13,000 mark, the steady price increase over the past week means it may not be long before bitcoin matches its 2019 high.

It’s a critical move, too. Cryptocurrency news site FXStreet said last week that the market was entering a “mostly bearish” period, as it would be difficult for bitcoin to gain traction after falling below the $10,000 mark.

Bitcoin’s strong performance over the past week has also had an impact on rival coins.

Ethereum, ranked second behind bitcoin, rose from a monthly low of $230 (£184) per coin to today’s value of $310 (£249), CoinMarketCap notes.

Behind ethereum in the charts sits the banking-focused coin Ripple, which has yet to recover from the severe market swings that occurred at the end of June. It’s currently valued at $0.39 (£0.31) per coin, down significantly from its 2019 high of $0.48 (£0.38).

What’s been the reaction from analysts?

Despite bitcoin being some way off its all-time high of $20,000 (£16,370), recorded in December 2017, the cryptocurrency has “more than quadrupled in value” since the start of the year, according to The Independent.

While many attribute the virtual coin’s gains to larger companies announcing their own cryptocurrencies, including J.P. Morgan and Facebook’s Libra coin, some analysts believe that bitcoin’s dwindling supply may be spurring investor interest, the news site notes.

Although bitcoin is a virtual asset, the nature of the blockchain – the encrypted technology that underpins cryptocurrencies – means there is a finite amount, 21 million to be precise, that can be mined, which in itself is a difficult and costly process that unlocks more bitcoins.

“We may see further steep rises for bitcoin as it is slowly nearing its maximum supply of 21 million [coins],” said Christel Quek, commercial head for digital currency firm BOLT.Global. “Currently, there are nearly 18 million in circulating supply.”

Meanwhile, Edward Moya, a market analyst from foreign exchange firm Oanda Corp, told Bloomberg that bitcoin “could be coiling for a big breakout as institutional interest for blockchain technology shows no signs of slowing down.

“The bubble-like gains this time are driven on solid institutional interest and while security is still a big risk, it appears Bitcoin has overcome many of its initial growing pains,” he said.

The FTSE 100 has reached its highest level this year after the US and China agreed to restart trade talks over the weekend. It climbed to 7530 during Monday's session, its peak since the end of September.

Thawing relations between Donald Trump and his Chinese counterpart Xi Jinping have eased fears over the escalation of a damaging dispute between the world's two leading economies.

Amid a global stock market rally, Wall Street indexes were also significantly higher, with the S&P 500 hitting an all-time high as it surpassed a previous record set in June.

The Dow Jones Industrial Average rose 0.97%, or 258.15 points higher, to 26,858.11. The Nasdaq jumped 1.67%, or 133.39 points, to 8,139.63 and the S&P 500 gained 0.58% to 2,941.76 - the new intraday record.

“Investors are relieved that Donald Trump and Xi Jinping backed away from a deeper trade war, agreeing to restart negotiations during their meeting at the G20 last week,” says The Guardian.

Scott Brown, chief economist at Raymond James, said: “Any step towards a trade resolution, and it doesn't have to be a lot of progress - just a step, is viewed very positively by markets.

“And investors at this point are trying to focus on the positive in hopes that there will be some trade resolution down the line.”

However, Fawad Razaqzada, Market Analyst at Forex.com, has sounded a note of caution. “If this latest trade optimism fades completely, the focus will turn very quickly to the ailing global economy,” he said.

“As such, the S&P’s latest breakout to a new all-time high could be brief, especially as some of the positivity regarding trade talks was already priced in.”

CNN is also at pains to try and temper the optimism. “The fragile truce does little to alleviate pressure on a global economy wounded by earlier exchanges of fire that hit manufacturing and trade,” writes Charles Riley.

The proportion of unprofitable companies floating on US exchanges has reached record levels, stoking fears the market could be headed for another dotcom bubble burst.

According to analysis by the Warrington College of Business at the University of Florida, 81% of the 134 firms listed publicly in America in 2018 were loss-making businesses and almost a third were tech stocks.

Harry Brennan in The Daily Telegraph writes that “the only time the percentage of publicly launching companies that made no profits at all was equally as high was in 2000, when 380 initial product offerings (IPOs) were recorded – the height of the dotcom bubble”.

At that time investors poured money into start-up internet companies, betting on rapid growth and hopes of cashing in when their shares went public.

“Most of the dot-coms which listed on stock exchanges had done little more than consume vast amounts of investor cash and showed little prospect of achieving a profit” writes John Colley, a professor at Warwick Business School, on The Conversation.

“Traditional metrics of performance were overlooked and big spending was seen as a sign of rapid progress”, he adds, and when it turned out that many were failing to turn a profit, investment subsequently dried up and businesses collapsed.

Fast forward nearly two decades and 2019 “has been hailed the year of the tech ‘unicorn’ IPO,” says Brennan, “as private technology businesses valued at more than $1bn look to make their stock market debuts”.

Ride-hailing app Uber was one of the most high-profile, floating for $82bn (£65bn) in April, but then announcing a $1bn loss a month later.

Gregory Perdon, co-chief investment officer of private bank Arbuthnot Latham, has seen worrying parallels between 2019 and 1999.

“In the late 1990s, taxi drivers in New York would tell me which call options they were buying on which tech stocks - it was euphoric back then. I don’t think we are at those levels just yet but, equally, I don't think we are a million miles away,” he says.

In fact, says Matthew Vincent in the Financial Times, “some argue that the only real difference is that the taxi drivers are now the investment, rather than the investors”.

He continues: “As in 1999, there are plenty of people claiming ‘this time, it’s different’. Some point out that the high level of loss-maker IPOs reflects the number of biotech companies raising equity these days - which they must do to fund drug trials. Others note that in recent years, several loss-makers have turned into stock-market darlings”.

An oft-cited example is that of Facebook, which floated in 2012 at $38, falling to $20, before peaking last year at $210.

However, “for sceptics who feel they have seen this movie before, the performance of Lyft in the early days of its quoted life rings a few bells”, says Tom Stevenson in the Daily Telegraph.

Uber’s ride-hailing rival, Lyft, was priced at $72 a share when it debuted in March, jumping to $87 on its first day before falling back to around $63 today. “The pattern of initial pop followed by quick and panicky reassessment is directionally similar to the early trading seen in lastminute.com, the poster child of the dotcom era,” says Stevenson.

Like two decades ago, “traditional metrics have been ignored and user growth taken as a proxy for future profitability. But this requires an enormous leap of faith” writes Professor Colley, meaning “it’s only a matter of time before the app bubble bursts”.

Chinese e-commerce giant Alibaba Group Holding Ltd has filed confidentially for a listing on the Hong Kong stock exchange, in a move they hope will generate $20 billion of liquidity.

The listing, revealed by anonymous sources to a number of publications, will be the company’s second share sale, after its $25 billion float on the New York Stock Exchange in 2014 - an IPO that still holds the record as the biggest in history.

“The person with knowledge of the matter was not authorised to speak with media and so declined to be identified”, said CNBC.

The listing is projected to become Hong Kong’s second-largest sale of all time, following the AIA Group’s 2010 IPO. Alibaba has a market capitalisation of $418 billion, and revenue in fiscal 2019 reached $54.4 billion.

At the time of its initial public offering, Alibaba had planned to list simultaneously on the Hong Kong stock exchange, but, as the New York Times describes, “the tech firm's management structure clashed with the city's listing rules.” However, “Hong Kong Exchanges & Clearing, the city's bourse operator, changed its listing rules last year - primarily with the aim of attracting Chinese tech groups.”

The bourse’s rule change included a provision that would allow companies to file confidentially.

Bloomberg, who initially reported the news, speculates on the reasoning behind the decision to sell shares again: “The deal could help finance a costly war of subsidies with Meituan Dianping in food delivery and travel, and may also divert investor cash from rivals like Meituan and WeChat-operator Tencent Holdings Ltd.”

Writing separately in Bloomberg, Tim Culpan and Nisha Gopalan explained the political dimensions of the decision: “By coming closer to home, Alibaba shows Beijing where its loyalties lie; and authorities can revel in what they see as an example of China’s growing power. You can just imagine the state-media editorials crowing about this evidence of the US's decline.”

Reuters agrees there are geopolitical considerations behind the move, saying a cash-generating sale is a “priority for China as economic growth slows and a trade spat with the United States intensifies.”

Alibaba, whose co-founder and executive chairman Jack Ma retired in September 2018, is expected to offer its stock with investment banks China International Capital Corp and Credit Suisse, sources revealed.

“News of Alibaba’s filing sent shares in affiliated firms soaring,” reported Bloomberg. “New Huadu Supercenter Co. and Sanjiang Shopping Club Co., both backed by the e-commerce giant, rose by their 10% daily limits on mainland exchanges. China TransInfo Technology Co., in which an Alibaba affiliate will take a 15% stake, gained as much as 5.4% in Shenzhen. And CICC climbed as much as 1.8% while the Hong Kong market was down a tad.”

This represents positive news at a fraught time for Hong Kong, as protests over a proposed extradition treaty with mainland China continue to destabilise the semi-independent city.

The protests have “raised concerns over the potential impact on the city’s financial market and businesses,” according to Reuters. “On Thursday Logistics real estate developer ESR Cayman Ltd... pulled what would have been the largest Hong Kong listing so far this year, citing ‘current market conditions’.”