Please find below our Investment Market Update as at 3rd July 2020.
Blue Sky Investment Market Update
A focus on the world’s biggest economy.
Better data from the US
For the second month in a row, the unemployment rate in the US has stumped analysts. The jobless rate fell in June from 13.3% to 11.1%, adding 4.8 million jobs. Indications are that the economy is recovering quicker than expected. The Congressional Budget Office suggests that the US economy will shrink by 5.9% this year before recovering to 4.8% in 2021.
However, there’s a but… there’s always a but!
Whilst the data was well received by investment markets, we cannot ignore the spread of the virus with estimates suggesting that deaths could reach up to 160,000 by the end of July. The US has just surpassed 50,000 new infections in a day for the first time.
I had an interesting discussion yesterday with Ben Kumar, a senior investment strategist at Seven Investment Management, about the way the US is handling the crisis. He suggested that we may see infection rates and deaths continue to rise, but at the same time we may also see economic data improving.
The US is run very differently to the UK with greater autonomy given to individual States. We are already seeing states which relaxed lockdown restrictions now having to reimpose more stringent measures.
In summary, whilst the latest data has helped lift equity prices suggesting a faster economic recovery than was predicted, gains have been tempered by the dramatic rise in Covid-19 cases across certain States.
Tensions continue to rise
The war of words between the US and China is beginning to gather momentum over the imposition in Hong Kong of the ‘national security law’, although to date the markets have sat back and have not been too perturbed over China flexing its muscles.
Trump or Biden?
Continuing with the American theme, it looks as though investment strategists are now considering what happens if Joe Biden wins the Presidential election. There are fears that there could be more taxes and increased red tape around regulations.
Apparently, support for Joe Biden has leveraged significantly. His stance in many ways could not be more different than Trump’s, with him having a focus on boosting clean energy and a desire to target zero emissions by 2050. Again, encouraging for companies with a strong environmental focus.
He has also talked about plans to expand the national health insurance programme, called Medicare, whilst also looking at ways to change the pricing of pharmaceutical drugs.
Predictions among investors have also shifted according to the FT. A Citigroup poll of 140 fund managers released this week, found that 62% believed Mr Biden would triumph — a reversal from December, when 70% of investors surveyed by the bank predicted victory for Mr Trump.
Why this is important?
All of the above has implications for America on a number of levels, but with regards to investing, it does suggest some volatility ahead and a possible re-positioning of investment strategies. Trump’s light-touch tax regime may well be reversed which would have implications for business and profitability, causing analysts to rethink their strategies.
Speaking with L&G Investment Management this week, they reinforced that they have reduced their exposure to the US, partly because of the potential for a change in political dynamics but also due to concerns about their aggravated spats with China, along with the over reliance on the top technology stocks driving the US equity markets. It is unclear what would happen to regulation in the technology space under Biden.
A positive week for equities but today the markets are giving back some of the progress made with the FTSE 100 falling by nearly 1% today – clawing back much of its gain from yesterday.
Markets are at half-mast looking for direction. Will it be better economic data that points the way, or will it be worsening Covid-19 statistics which will serve to create a weaker economic outlook?
Watch this space!
Have a lovely weekend and if you are inquisitive enough, a nice refreshing drink at your local hostilery.
Gary and the Investment Team
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.