9 June - update from our investment partner

  • 9th June 2020

What has happened

Despite some signs of fatigue at the opening of European markets yesterday given Friday’s rally, markets pushed on as the session developed with a sharp rally coming in to the US close as more stimulus was revealed by the Federal Reserve.

US losses erased

The National Bureau of Economic Research yesterday concluded that the US has been in recession since February. This was therefore a fitting day for the US to erase its losses for the year and the US Technology sector to hit all-time highs. It’s a testament to the incredible speed of lockdown’s impact on economic data as well as the central bank and government response that US markets spent a mere 3 1/2 months in negative territory after a pandemic shut down most parts of the developed world.

Fed announces more stimulus

As a sign that this stimulus is not yet over, the Fed announced an extension to their ‘Main Street’ programme ahead of their meeting this week. Highlights in this package include loan minimums being decreased to $250,000 and the term of the loans being extended by one year to 5 years. Most aspects of the programme were tweaked, all of which should encourage take up and reduce the strain of repayment. The fact that this has come in ahead of Fed meeting this week continues the theme of recent months of a slow drip feed of stimulus then using the actual meetings to focus on forward guidance and projections.

What does Brooks Macdonald think

The market has enjoyed a sense of exuberance after last week’s astonishingly positive US employment statistics. Whilst the financial market rebound has now proven to be V-shaped, supercharged by central bank and government liquidity, a U-shaped recovery is more realistic for the broader economy. When we entered lockdowns the poor economic data of a full crisis was concertinaed into a small number of data points. To expect a similar timeline for the recovery ignores the severe impact on employment, supply chains and consumer confidence that COVID-19 has wrought. Whilst we may need to wait for a full US economic recovery, the coordinated monetary and fiscal policy we’ve seen since the crisis began will undoubtedly help boost the recovery as it develops. In the interim, markets are very happy to look ahead to greener pastures.

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