11 August - update from our investment partner

  • 11th August 2020

The path of least resistance remains upwards for equities

What has happened

On a total return basis (including income) the US index hit an all-time high yesterday and based on futures gains today a similar record in price terms is within reach. Much of this happened on relatively little news suggesting that the path of least resistance remains upwards for equities given the ultra-low rate environment.

US case numbers improve

We have seen a steady slowing of new case growth in the US over recent weeks and this has now followed through to a fall in hospitalisations which have a lag to the headline cases. New York State now has the lowest levels of hospitalisation since the start of the pandemic with the second wave hotspots of Florida, California and Texas all seeing a fall in hospitalisations as well. European new cases remain elevated but European policymakers will be hoping that the US trend of higher cases but without the corresponding increase in fatalities continues. This has been attributed to societies becoming better at shielding the vulnerable (both formally and informally) as well as an improved understanding of the virus and the treatments that can be used to control its mortality rate.

US/China risks

Markets largely shrugged off the continued deterioration of US/China relations with news of further Chinese sanctions against US officials. Those sanctioned included outspoken critics of the Hong Kong National Security Law such as Marco Rubio and Ted Cruz. A flashpoint for further US-China tensions could be the meeting between representatives ‘on or around’ this Saturday where progress on the Phase One trade deal will be discussed six months after coming into effect. Despite the recent individual sanctions and forced closures of embassies, both sides have so far stopped short of any action that would put the Phase One trade deal in jeopardy with both parties still seemingly committed to the deal. Indeed, tellingly, after recent mis-judged comments from a White House adviser to the contrary, Trump went out of his way to reassure that the trade deal with China was “fully intact”.

What does Brooks Macdonald think

Despite the rally in equities meaning that valuations look rich on an absolute basis, the relative attraction of equities versus bonds has remained intact. We expect on quieter days in August that this will help equities rise as investor cash on the sidelines looks for an opportunity to generate inflation-adjusted returns.

All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.