The path for global equities is never smooth or easy – and as we have previously said, because equity markets hate uncertainty (and the coronavirus outbreak is a big uncertainty), they are currently trading on every news headline.
As a result, over the coming weeks and months we will have to live with taking two steps forward and one step back.
For example, yesterday (Tuesday 23 June 2020) global equity markets rose strongly, helped by reports that Donald Trump is close to announcing another round of stimulus, coupled with his reassurance that the US/China Phase 1 trade deal was fully intact and PMI data from the UK, Eurozone and the US which encouragingly showed a strong economic rebound is underway.
We covered the UK’s PMI data in yesterday’s commentary (please see here), and the US PMI data was equally as good. Although the US PMI reading was just below 50 (the line dividing expansion and contraction), the direction of travel importantly showed the coronavirus damage is almost over, as both the composite and manufacturing readings jumped by 9.8 points to 46.8 and 49.6 respectively – their highest readings since February.
However, annoyingly global equity markets have this morning reversed yesterday’s gains as the coronavirus continues to spread across the US, with a number of states reporting record increases in infections, coupled with an uptick in Germany (which was ahead of France, Spain, Italy and the UK in easing lockdown restrictions).
Although from watching the news headlines on TV, one can easily find lots of reasons to be negative about the outlook, coronavirus or not, but the relaxing of the lockdown restrictions, coupled with the unprecedented government and central bank stimulus will mean the global economy will recover strongly in the second half of 2020 – however, we do all need to accept that equity market volatility will remain elevated in the short-term as the road to this recovery isn’t a one-way street.
Investment Management Team