UK share markets had a right old tear up last week. The FTSE 100, for instance, has put in its best weekly performance since April as hopes of a Covid-19 vaccine have risen.
However, it’s too early to claim that the new bull market is finally here. There are plenty of issues out there that could derail the global economic recovery. There is still a high chance that UK share prices could go down the plughole again.
It’s worth beginning by looking at Covid-19 developments of recent days and considering the possible implications for UK share investors. On the plus side, Pfizer announced that the vaccine it’s developed with BioNTechB has a terrific 90% efficacy rate. The news has fanned hopes that scientists have finally found the magic formula to beat the coronavirus. It’s also been suggested that other Big Pharma players are on the verge of releasing their own positive vaccine data.
But let’s take a step back for a second. There’s still no guarantee that a game-changing vaccine is about to be released, by Pfizer or anyone else. Even when it is released it’s possible that any treatment won’t be as effective at fighting the pandemic as many hope. On top of this, the rate at which Covid-19 cases continue to rise means that further rounds of lockdowns might be required before a vaccine even hits the shelves.
Brexit is another issue that threatens to unravel the significant share price rises of recent days. No trade deal has been agreed between lawmakers in London and Brussels in four-and-a-half years since the Brexit referendum. There’s now just weeks before the end of the transition period. A ‘no deal’ separation would have serious ramifications for the economic recovery.
It’s been suggested that next week’s European Union summit is the last opportunity for a deal to be struck. The chances of a deal appear grim then. But on the flip side this means that UK share prices could surge if both sides can unexpectedly eke out an accord. The imminent exit of arch-leaver Dominic Cummings as Prime Minister Johnson’s special adviser is thought to have improved the possibility of a deal.
There’s a number of other reasons why a Brexit deal could be around the corner too. As ING Bank notes, a sliding Conservative rating in the polls, rising calls for Scottish independence in the event of a ‘no deal’, and the election of Joe Biden as the new US President and its implications for a US trade deal, all raise the chances of a last-minute accord being hammered out.
I’m still buying UK shares for my ISA!
It’s nigh-on impossible to predict where UK share prices might be going next. But I’m not too concerned about whether British stock indexes will rise and fall in the short-to-medium term. I buy stocks with a view to holding them for a minimum of a decade. Over this sort of timescale the impact of stock market volatility tends to be negligible. This is why I plan to keep buying UK shares for my Stocks and Shares ISA despite the uncertain economic outlook. Besides, there are still plenty of too-cheap-to-miss stocks out there following the market crash of early 2020.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020