Hello again and I hope that you have had the best week that you could have had, under these continuing circumstances. Is there light at the end of the tunnel, or is the light a high-speed train coming to run over us? Who knows? What I do know is that it’s the end of the working week and this is the latest edition of News, Views and Truths.
This week has continued the theme of “two-tone” and I am not referring to the genre of music that fuses traditional Ska with musical elements of Punk Rock and New Wave music. I am instead referring to the paradoxical nature of the equity markets and the economic data that is hitting the headlines.
The term of the week is “Nasdaq unchanged”, due to the fact that the US Nasdaq index is less than 3%* away from its opening point of 2020. The index is a favoured bourse of technology companies and their performance has resulted in it rallying 29%* from its March lows. That performance is frankly astonishing at any point in history, never mind the current situation that the world finds itself in.
* Source: Morningstar
And there we have the paradox. I ask myself every day, is the economic backdrop different today than it was at the beginning of the year? Are the economic conditions conducive to such an extraordinary rally in prices? The equity markets believe them to be. The bond market certainly does not, with yields continuing to push lower, with some participants presenting a compelling case for negative rates in the US. That is unheard of, in the same way as a 29% rally in equities over such a short period is also.
The Bank of England weighed in this morning, warning that the British economy could shrink by 30% in the first half of the year as a result of the Coronavirus pandemic. Yet, at the time of writing, the FTSE 100 is up 0.25% at 5868 points, over 17% up from the lows. It seems that this dislocation between the stock market and the economy is not restricted to one side of the pond.
It is a most perplexing time, one which is unprecedented and as such, discussion and debate is key. And that’s one reason why I have started a new regular series of interviews with some of the greatest investment minds in the UK today, called “When Andrew met…”. The first one can be found here where I discussed the US equity market with Julian Cook of T Rowe Price. The plan is for these to be released at the beginning of each week. As a heads up, the next one is on the subject of Emerging Markets with Andrew Keiller, Emerging Market specialist at Baillie Gifford and member of the Baillie Gifford Emerging Market Leading Companies fund investment team.
The fund has been a consistent standout performer within the Global Emerging Market sector and is the default selection within our portfolios. Trust me, you do not want to miss this and you can make sure you don’t by subscribing here.
And with that to look forward to next week, you can now relax and enjoy the weekend with our usual playlist. Take care and I shall see you all next week.
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