Global Markets to 23rd August 2020
- Global equity markets suffer a volatile week, responding to mixed economic data
- Many of Wall Street’s leading indices hit new, all-time highs, despite market volatility
- In just two decades, Apple has gone from near-bankruptcy to being the most valuable company in the world
- Covid causes national debt levels to surge in the UK while the European economy may be slowing
- Commodity prices rise on the back of Chinese demand
- The Fed goes virtual with its annual monetary policy symposium
Global Market Summary
Global equity markets suffered a volatile week with investors responding to a mix of good, bad and indifferent economic data. The US economy got a boost from reports of a sharp rise in housing market sales. This was tempered by the news that new US unemployment claims had risen to 1.1 million having fallen below 1 million for the first time since March.
This mixed economic news did not stop Wall Street’s S&P 500 and Nasdaq indices from hitting new highs, assisted by their heavily weighted technology sector exposure. The performances of these companies have helped the US stock market to erase losses from the pandemic bear market in just six months.
This year will shatter records and set new milestones. In the case of the US, the S&P 500 Index recorded numerous all-time highs, registering its third-fastest rally to recoup previous losses, its shortest bear market in history and its first US$2.0 trillion market cap company.
US technology giant Apple – which came very close to bankruptcy in the 1990s – has become the most valuable company in the world, despite all the coronavirus-related challenges it is facing. Just two years ago the company’s market capitalisation reached US$1.0 trillion; and on Wednesday of last week it became the first American US$2.0 trillion market cap company.
US technology titans, such as Apple, Microsoft, Amazon, Facebook and Alphabet (Google) are among the world’s top-six largest businesses and have grown into global powerhouses that billions of global consumers now use and rely on. To put this into perspective, the value of Apple and Amazon combined is more than the entire UK stock market.
Apple follows Saudi Aramco – Saudi Arabia’s multinational oil and gas company – in reaching the two-trillion-dollar milestone. Saudi Aramco reached a value of US$ 2.0 trillion on its second day of trading on the Saudi stock exchange in December 2019 after holding the biggest IPO in history.
Analysts now predict a period of upcoming smart device launches (Apple and otherwise) and new capabilities and technologies (such as 5G) that will create a “super cycle” of sales throughout the consumer tech sector.
Last week, statistics about the cost of the pandemic in the UK revealed that the country’s national debt surged past £2.0 trillion for the first time ever. This was followed by a warning from Chancellor Rishi Sunak that Covid-19 was putting UK public finances under significant stress. Difficult times lie ahead as furlough and government support schemes come to an end, while uncertainties about a second wave of Covid and renewed localised lockdowns are creating additional anxieties for businesses and consumers alike.
However, UK retail sales volumes were better than expected in July and are now above pre-pandemic levels.
Unfortunately, a post-Brexit trade agreement between the UK and the European Union still seems unlikely. Both head negotiators, Michel Barnier and David Frost, admit to making “little progress”, hampered by differences on fisheries and policy and state aid rules.
In Europe, the Purchasing Managers’ Index suggests that the recent economic recovery is losing some momentum, possibly due to European countries seeing their highest rises in daily Covid cases since the spring.
While uncertainty persists, leading central banks are likely to continue with stimulus packages, which could give rise to further equity market strength as we enter the autumn months. In recent weeks, the values of leading base metals have risen as Chinese demand has picked up on the back of Beijing’s stimulus package. Copper and iron ore have traded at two and six-and-a-half year highs, respectively, suggesting that the surge is down to Chinese stockpiling.
An intensive effort geared towards getting more people to consider switching to electric vehicles and heating systems is undermining the longer-term outlook and demand for fossil fuels and energy, such as oil. The outcome of the forthcoming US presidential election will influence the energy sector – a Biden administration will likely lead to a cut in both US output and demand for oil.
As August draws to a close, the markets may be tested by the narrow leadership of Wall Street and technology. The Federal Reserve Bank will be holding its annual monetary policy symposium next week; unlike in previous years, this event will take place virtually.
Fed Chair Jerome Powell is expected to highlight the implications of monetary policy, as well as the central bank’s projected agenda regarding the pandemic and recovery expectations for the biggest economy in the world.
At IQ we remain ever vigilant of the implications that current circumstances have for our clients.
Peter Lowman is the Chief Investment Officer at Investment Quorum, a Director of the company and an integral member of our investment committee.
This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.
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