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Equities have once again ground slightly higher this week, whilst focus once again remains on COVID infection rates – not only in California, Florida, Arizona and Texas, but we have also had Leicester in lockdown here, and Melbourne in Australia. In total 43 states in the US are seeing higher growth rates in new cases than a week ago. Other countries, such as Germany, already have more formal procedures for local lockdowns in place; indeed if the German criteria were applied (over 50 cases per 100,000 people) the list of cities and towns in the England under local lockdown would be considerably longer. The only good news in the US is that through either younger people being infected or an improvement in treatments (or a combination), the mortality rate is lower than in previous months. It is interesting to consider that the younger population may not be as strict in “COVID-care” (i.e. wearing masks and social distancing), and this is influencing the infection rate, but it is also clear that the sub 50 age category have better outcomes once infected.
We have spent this week writing our quarterly reports to clients and it seems a long time ago that markets had such a torrid March as COVID-19 introduced itself to the wider world. We remain focussed on the task in hand and not remotely relaxed by the market’s steady progression higher. It took over 2 months for the first 100,000 COVID cases to be identified, and we now have 100,000 cases globally each day. The World Health Organisation said this week “the worst is yet to come” with Chief Tedros Ghebreyesus adding “the hard reality is this is not even close to being over; although many countries have made some progress, globally the pandemic is speeding up”. As professional investors we really do see the huge global liquidity from central banks as being able to support markets moving forwards, although we remain cognisant of the risk over the shorter term and we will continue to make sensible investment decisions on our clients behalf.
Economic data is improving week by week and yesterday’s US monthly jobs figures saw the largest increase in modern times with 4.8 million new jobs created, though in reality these numbers were predominately people returning to their old jobs. The re-opened (for now) leisure and hospitality sector made up 2.09 million jobs, 40% of the gains, while the retail sector added a further 740,000 jobs. While President Trump claimed the economy was “roaring back”, the unemployment rate, estimated at 11.1%, remains higher than the peak from the 2008/9 financial crisis. Whilst 7.5 million people have found work in the past two months, this fails to eclipse the 22 million jobs lost in March and April. The weekly new unemployment claims data remains stubbornly high in the US, and the 1.43 million new claims reported yesterday is still over double anything seen in history before the pandemic. There is now a risk that in the short term that we begin to see the number of claims rise again as the US rolls back on opening up the economy and the ongoing elevated data continues to imply the economic impact from the pandemic may endure longer than markets expect.
For now, the US equity market is progressing higher, although the return to regional lockdown will impact on the economic recovery in the US as the month moves on. Both California and New York states have now backtracked on reopening, with New York delaying the planned restart of indoor dining set for next week, and California closing indoor bars and restaurants across 19 counties, including Los Angeles. In total, 16 states have paused or reversed reopening plans. We are happy that we reduced US exposure a few weeks ago and we will watch developments with interest. There is no doubt that many market leading companies are found in the US indexes, but right now we see better value in Asia, where this week we increased our equity exposures in discretionary portfolios.
As always, we hope that our clients are keeping safe and well, please do let your consultant know if you have any queries, at any time.