2 April - updates from our investment partners

  • 2nd April 2020
  • Investment partners update

The latest in our daily briefings from one of our investment partners

What has happened

What happens when you have a void? Something expands to fill it. The market weakness yesterday has as much to do with that void as the incremental news flow. Bar the occasional surprise, the daily drumbeat of one-upmanship by governments to announce the largest stimulus programme has taken a pause. Companies are also taking advantage of regulatory breaks allowing them to delay their earnings announcements, this means a key gauge of economic health is being postponed. During this period there are two daily streams of information that markets need to take their cue from: daily new case/fatality growth and economic data releases.

Why are the US figures so dramatic

New York State has more confirmed coronavirus cases than the entirety of China, putting a spotlight on the US’s 4th largest state and causing concern over the method of dealing with the outbreak in the US. Donald Trump has been keen to manage the economic impact of coronavirus whilst also ensuring that the rebound, when it does come, is supercharged. Given this is an election year, history tells us that high unemployment and a depressed stock market puts an incumbent US President in a tricky position. Equally if Donald Trump is seen as ignoring the outbreak with a preference for keeping business rather than citizens healthy, it may also backfire. Talk of restricting flights between viral ‘hot spots’ may be too little to control the pace of new case growth in the US. Most states have already taken tougher measures asking citizens to stay at home however the legal basis for a federal, US wide, lockdown is murky at best meaning the US may struggle to impose a full lockdown if states dissent.

What does Brooks Macdonald think

Vacuums are always dangerous for stock market direction particularly when news is mixed as we saw yesterday. New case growth rates appear to have peaked in Europe and therefore attention is very rapidly moving to the US to see whether those figures can be brought under control. The US rate of decline is slower, with daily new case growth staying stubbornly in the mid-teens. The risk is that the improvement in the rest of the world, and possible lockdown restrictions lifting, is overshadowed by escalating problems in the US due to an inability to impose a full national lockdown. Until we see a sizeable slowing in US new case growth, days like yesterday are inevitable, particularly when aided by poor economic data releases.

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.