Please find below our Investment Market Update as at 28th August 2020.
Blue Sky Investment Market Update
What’s going on?
I’ve had quite a few responses following my talk last week, which was entitled “we are out of recession”.
I mentioned record returns in US stock markets amid the deepest and maybe, the shortest, recession in history.
Certainly, it seems very odd and so I thought it worth covering this off again.
We all know about the response to the virus. The first thing to say is that the global recession wasn’t caused by a financial meltdown. It was caused by a health crisis.
Adding credence to my views about us being out of recession (just not on a technical basis) was an article in the FT this morning where an equity portfolio manager with Franklin Templeton stated “we’ve past the peak of negative economic data. You have to look through the canyon of the economic impact and look toward 2021, 2022 in terms of the earnings outlook”.
As I have stated on many occasions, economic data is backward looking but the markets are forward looking.
The biggest…
The FT also reported what Jim Paulsen, the Chief Investment Strategist at the Leuthold Group said “the unbelievable bounce in certain economic metrics, including retail sales, new and existing home sales and jobless claims, has added further momentum to the equity rally in the US.”
“This pandemic has created the biggest rise in unemployment, the biggest drop in GDP and the biggest inventory liquidation,” he said. “It sounds horrible, and it is horrible, but what you find is that the biggest divots in the economy lead to the biggest bull markets.”
It’s not a blanket recovery
As we know all too well, certain sectors are doing very well, and others are really struggling.
When it comes to stocks, the question is where else do you put your money, especially with record low interest rates?
The stimulus from the Federal Reserve has been instrumental in driving Bond yields in the US into negative territory, which has increased the clamour for companies that are still achieving sales and profits. Apple, Microsoft and Amazon, which make up a large proportion of the S&P 500 by capitalisation, are all up 40% this year!
However, this does not tell the full story because, for example, the gains of indices are skewed by capitalisation and create a concentration risk. The FTSE 100 has had the opposite effect dominated by banks and oil companies. In the FTSE All World Index of 4,000 companies, just one third have matched or eclipsed its 3.1% gain this year according to Bloomberg. Approximately 47% of them are still down 10% or more for the year!
So, there we have it. Some sectors in the US are booming but approximately half of stocks have lost circa 10% this year.
The dangers of just following an index!
Have a lovely bank holiday weekend
Best wishes
Gary and the Investment Team
Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.
