International Markets Overview

LionPress October 2020 Issue

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The markets have significantly rebounded in response to the moderate re-opening of economies, an unprecedented level of economic stimulus from governments and central banks exercising monetary-fiscal policy, and the prospect of a vaccine to resist COVID-19. Plotting the data points of the plummet of the equity markets -beginning in the last week of February 2020 and intensifying during March 2020- and of the market’s observed stages of recovery is likened to a U shape market bounce in technical analysis, signaling a more gradual and slow recovery than a sharp V shape. Others speculate that a double dip recession may be possible that would liken the shape to a W if the anticipated breakthroughs in a vaccine become disappointing, in light of spikes in COVID-19 cases, and if the job creation rate slows in line with strained business operations in this environment.

While July 2020 saw 1.8 million jobs restored and added to the US economy, the unemployment rate is still tremendously below pre-COVID levels. As reported by Statistica, the unemployment rate in Feb 2020 was as low as 3.5% and currently as of July 2020 sits at 10.2%, down from a high of 14.7% in April 2020. While this regained ground is an indication of labor force adaptions and is encouraging, there is skepticism regarding high job churn potential (hired to be laid off again), and the sobering recognition that the unemployment rate at 10.2% (July, 2020) is higher than it was on Oct 2009 at 10% following the effects of the 2008 housing bubble crash reported by Investopedia, in which they study the differences between cyclical and structural unemployment. Analysts must decipher whether the effects on unemployment are simply cyclical based on market movement or more permanently affected in a structural way due to this new normal environment and its implications on the way businesses operate – more digitally based than brick and mortar and with affected capacity due to social distancing measures.

Nonetheless, when considering a macro-analysis of the S&P 500 since 1928 to August 7th, 2020, it is apparent that while COVID has certainly placed significant pressure on markets the net effect for the year (to Aug 7 2020) is positive unlike some years in which the annual percentage return from opening index level to closing has been negative. The year 2020 still is going, and as the US and other countries experience spikes in Corona virus cases and jobs are under pressure from social distancing measures, we must stay keenly attune to the markets reactions to current conditions.

As of July 2020

Equity markets have been positive for the month of July 2020 thus far (as of July 17. 2020). Month to date, as of July 17th 2020, most markets are exhibiting positive growth, inclusive of but not limited to the NASDAQ Composite Index (+4.42%), EURO STOXX 50 (+4.07%), MSCI Emerging Markets Index (+6.03%), BRAZAL IBOVESPA Index (+8.24), and the S&P 500 (+4.01%). Compared to the drastic low of 2,237 that occurred within the S&P 500 on March 23rd, 2020, the S&P 500 closed at 3,232 on June 8th, 2020, a +44% upward movement just 4.5% shy of the record-setting high in the S&P 500 of 3,386 on February 19th, 2020 and just two points below the closing level of the S&P 500 at the conclusion of 2019, 3,230. Alas, as on July 21st, 2020, the S&P 500 is slightly positive again for the year, at a level of 3,251, albeit up to July 17th, 2020, for the year many of the equity indexes are still negative but gaining ground. Technology has been resilient as represented by the tech concentrated NASDAQ which for the year is significantly positive +17.06% up to July 17th, 2020.

In addition to COVID-19, during the bear market of March 2020, the world was experiencing the multiplier effects of the Russia-Saudi Arabia oil trade war, during which there was an tremendous oversupply of oil in the market amid historically low demand (in millions of barrels per day) due to the business slow-down caused by the pandemic and global trade route interruptions. This condition of surplus supply led to historically low prices for oil, which were insufficient for the expense footprint of the oil manufacturing industry leading to bankruptcies. Since then, Russia and Saudi Arabia and come to terms and production has been curbed.

It is worthwhile to consider the shifts in global markets and how they operate in this new normal environment when investing. Arguably the pandemic has caused geopolitical tensions, particularly between the US and China, and a to be observed decoupling and bifurcation of industries, as some countries consider the ability to self-sustain if there are trade interruptions again and the ability to engage in protectionism to assist local businesses. Rather than a broad classification of countries, as Emerging Markets, for example, as a part of a diversification strategy, select analysts have suggested a specific and deliberate targeting of investments based on country and niche sector. This is a more practical approach to basing assessments according to the handling and resilience of countries to COVID-19.

The beacon of hope and considered “solve all” antidote rests in the prospect of a COVID-19 vaccine, and speculations around its adoption rate given the personal disposition of the general public and the legalities around enforcement. Drug makers AstraZeneca (NYSE:AZN) and Moderna (NASDAQ:MRNA) are noted to be the forerunners with the potential to succeed in developing the vaccine. AstraZeneca’s phase 1 results released this month, July 2020, are reported to demonstrate encouraging results from early human testing. The markets are likely to pay keen attention and is speculated to react accordingly.

Equity Bank And Trust Bahamas remains steadfast in its fierce commitment to the protection and growth of client wealth amidst shocks to the market and stand in solidarity with the global community as economies recover.

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