Global Market Overview – August 2020

There is a sense that the world is returning to normal. Many people have taken full advantage of the ‘Eat Out to Help Out’ scheme, which has ensured a return of atmosphere to pubs, cafes and restaurants.

We have started to see this recovery come through in recent economic data. Notably, manufacturing and nonmanufacturing data across the US, UK, Europe and China are all showing signs of expansion.

New jobs are being created and unemployment remains contained in many regions, although much of this is due to the support schemes that governments have initiated. However, while there are signs of strength returning to economies, some specific areas of weakness will remain – particularly in the travel and retail sectors where COIVD-19 exacerbated existing trends.

Equities continued their winning streak with many markets globally returning between 2 and 7% in August. The US led the pack with major indexes (S&P 500 and NASDAQ 100) reaching new all-time highs.

Apple was one of the largest contributors to index returns throughout the month – with the company becoming the first to be valued at $2 trillion. In fact, the technology sector as a whole has been a clear winner in 2020, which makes sense because businesses have relied on computing power to keep their operations working remotely.

However, as the economy continues to recover, we believe some of the more economically sensitive companies that had underperformed will begin to generate strong returns.

Bond yields rose throughout August, making it clear that investors are becoming more confident in the economic recovery and support from central banks. We continue to believe the low yields available in government bonds provide unattractive returns and levels of protection to investors

Core views

Surge & Burnout of COVID-19 makes us optimistic… Although the virus remains a threat to human life, we believe the scale of this threat may be exaggerated. Economies could be open for business sooner than we expect. Positive for credit and equity.
The economic recovery could set records for speed and size… The world has never seen as much coordinated stimulus as in the past five months. A rapid V-shaped economic recovery is a higher likelihood than it seemed a few months ago. Positive for credit and equity.
Lagging assets should do well… Much of the first stage of the rally has been concentrated in well-known technology – and understandably so, given their resilience to coronavirus, and their balance sheet strength. In a more conventional economic recovery, though, other parts of the market could start to rally too. Positive for credit and equity.

Summary

Investors should try to focus on the fact that investing in the stock market over the long term, is a powerful tool to preserve the purchasing power of their wealth and on ensuring that they have an appropriate asset allocation for the level of risk with which they feel comfortable. A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.

August 2020

With thanks to Seven Investment Management LLP for their views and market thoughts.
RiverPeak Wealth Limited

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