Market Watch: Investors have the pandemic 'playbook' now

Despite signs we'll be living with Covid longer than we hoped, markets are coping well. Photo / AP

Neither the spread of the Delta variant in the US nor the local lockdown have dented a sharemarket rally, with investors looking through short-term Covid setbacks.

"I think it is because people have just got the playbook for this," says Pie Funds chief executive Mike Taylor.

Wall Street hit fresh highs this week and the local NZX-50 has been trading at its highest levels since January.

"Our market is still beating to the drum of what's going on around the world," Taylor said.

One of the big things that the market was looking towards was the annual meeting of the Federal Reserve at Jackson Hole in Colorado late last month.

"They were expecting an announcement on potential for tapering of bond purchases (QE) and maybe talk of interest rates hikes," Taylor said.

"The market was expecting the Fed to be a little bit Hawkish, perhaps in the way that the RBNZ has been".

There have been similar signs of strength in the US with the jobs market heading back to full employment and inflation rising.

"However the Fed didn't disappoint investors, they were a little bit more dovish than expected and what that's meant is that markets have once again gone on a rally higher".

Neither the spread of the Delta variant in the US nor the latest lockdown in New Zealand have dented market confidence.

"In the first day of lockdown we saw [the] local equity market sell off a bit, but within 24 hours they had recovered," Taylor said.

Markets hated uncertainty but there was now some certainty about the way the economy behaves through lockdowns, he said.

We had seen that in the latest reporting season where even lockdown-affected companies like retailer Kathmandu had performed well.

"Investors are choosing to look through that, as opposed to punishing them like they did last year".

With markets handling the pandemic and the immediate prospect of interest rate hikes receding, it was harder to see what would halt the market rise, Taylor said.

Ongoing supply issues likely did present some threat as they looked to be a feature of the Covid economy for some time yet.

"We keep hearing about these [micro] chip shortages for example. We know that chips go into everything," he said.

"That could be a reason that growth stays the same while inflation remains stubbornly high.

"So those supply issues could have an effect on inflation for longer than we're expecting".

It was clear from the ongoing issues with Delta that Covid was not going to go away in a hurry, Taylor said.

"That probably means our expectations are a bit too optimistic about when we can reopen to the rest of the world".

The evidence from the US with the resurgence of Delta was that the stocks starting to perform well again were those work-from-home type brands, he said.

"The ones that are suffering are hospitality and travel. So that's another thing to keep an eye on".