In July we saw the communications, technology, software and pharmaceutical industries continue to drive markets upward. In fact, some companies are thriving, not in spite of, but because of COVID-19. As the pandemic rips through the South American winter, we may be seeing a harbinger of the increasing threat in store for us in the Northern Hemisphere during our own frosty season. Sadly, even during the oppressive summer heat, COVID-19 is having a grand old time at our expense in the United States, particularly in the Southern States. Many countries in Europe and Asia are doing a far better job of opening their economies and remain the gold standard for the rest of the world to emulate. And yet, though Europe and Asia’s infection and death rates are comparatively lower, evidence of an incipient second wave is mounting. Moreover, the British and European economies are in the midst of dire recessions.
Hope remains that a vaccine may be ready in the medium term, which was buoyed when Russian President Vladimir Putin announced his country’s new ‘Sputnik’, despite having only been tested on a small scale and being a minimum of 6 months away from being widely available. Yet, while Putin and Russia were getting headlines, the truth is that their proposed vaccine is just one of several that one hopes and pretty much expects to be available some time in Q1 2021. Between now and then, we can only pray that a second wave can be either mitigated or avoided altogether.
July saw nearly 2 million new COVID-19 cases and over 27,000 deaths in the U.S, numbers that are scandalous by any standard. Yes, despite the clear and obvious reason for pessimism, there are also reasons to be more optimistic: the rate of contagion seems to be slowing and we expect new legislation to help stimulate the US economy that we believe will include more free cash to all citizens, increased fiscal spending, more central bank corporate bond purchasing and quantitative easing. Interest rates will remain at their historic lows and will continue to encourage investors to favor equities in developed and emerging markets over lower interest bonds, all of which should continue to increase trading volumes and push stocks higher and higher.
July 21st saw new stimulus measures in Europe designed to continue the economic revival. The European Commission created a €750 billion recovery fund, made up of grants and loans, to be distributed amongst the most impacted countries and sectors. This ambitious initiative will make the European Union a major borrower in global financial markets. July also saw Japan follow suit through Prime Minister Shinzō Abe’s $2.2 trillion stimulus plan. These actions plus similar ones in the United States should be able to foster a global economic rebound in the second half of 2020, which we believe will continue into and throughout 2021.
Our optimism was misguided in our June Market Commentary where we said that COVID-19 infections would abate in July, as they rose both at home and through the Americas, Middle East, India and Africa. Moreover, critical mass is gathering in Europe, Asia and Australia. Indeed, even New Zealand – who went over 100 days without a single infection – has reported new cases. Despite this, we have seen lower death rates as the medical community has come to grips with how to manage COVID-19 – something that is greatly assisted by Gilead’s Remdesivir – as well as better protection for senior citizens, a younger median age of those infected, signs of herd immunity in places like the poorer sections of Mumbai and New Delhi and improved facemask usage and social distancing. However, what will happen this winter and whether all the world’s experience in managing the pandemic will be enough to avoid a dreaded and devastating second wave is a disconcerting question mark.
The clear winners in global stock market are the so-called magnificent 7: Amazon, Apple, Facebook, Google, Microsoft, Netflix and Tesla who have led the way with the appreciation of their stocks. Generally speaking, tech, consumer discretionary, communication services, biotechnology, pharmaceuticals and health care are performing well on the back of the medical and social requirements posed on humanity by COVID-19. In both the above cases, we have a positive outlook for August and beyond as the pandemic is not going anywhere in the short-term. Moreover, one wonders how our social and communication inclinations have changed during this period and how virtual communication and remote work and study may become the new norm and how tech/communications equities may become the big winners in the post-COVID-19 world. Of course, it goes without saying that the business or businesses that create an accurate vaccine shall do very well, as will the full range of businesses whose products assist in production and dissemination. We remain keen observers of how unemployment figures, corporate earning and other economic indicators will take shape in the coming months as well as the direction in which they will push markets. We believe we are still seeing enough good news for markets to continue a slow rise via a second round of stimulus, which may indicate that the global recovery will remain on track. We are hopeful that the virus’ spread will slow down and that at least one of the vaccines being tested will save the day. In the meantime, we hope that all citizens will help to hasten the elimination of the virus by wearing a mask so we can get back to business before the emergence of a vaccine.
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