29 April - updates from our investment partners

  • 29th April 2020
  • Investment partners update

Global financial market update from one of our investment partners

What has happened

European markets performed strongly yesterday as more and more countries, including France, unveiled their plans to reopen their economies. The US market was unable to hold on to these gains however and indices slipped ahead of the close as mixed earnings weighed on investor risk appetite.

What did US Earnings tell us

We were watching Ford closely given their debt was downgraded to high yield last month and their miss in forecasted earnings will do little to improve the share price when it opens today. The company announced a forecasted operating loss of $5bn for their second quarter which is more than $2bn greater than markets were expecting. It was not all bad news however with Alphabet (Google) beating market expectations in Q1 with an impressive 14% increase in sales from a year ago. These sorts of numbers help support the argument for the strong valuation differential between Technology and other sectors, as well as the US vs Europe. Technology remains our preferred theme despite the huge relative out-performance of the sector.

What to expect from the Federal Reserve today

With the pace and scale of monetary easing that we have seen from the Federal Reserve over the last two months we expect little in terms of major announcements today. The main focus will be an update on the stimulus that has already been disclosed to the market alongside updated economic forecasts. Markets will be watching the forward guidance closely to see if the Federal Reserve are willing to commit to zero rates for any period of time. Expect the press conference to be of particular interest with questions around the Fed’s perceived level of credit market stress as well as the future path of economic growth.

What does Brooks Macdonald think

Whilst markets are largely content to look through poorer earnings given the discounts already in equity prices, sectoral trends do contain interesting information. Sectors which have already been slowly disrupted by technology such as bricks and mortar retail have seen intense pressure and coronavirus is likely to just speed up adoption of online shopping. A big question for example is whether we see a larger swing towards home working and with it the knock-on fall in demand for office space down the line. With most companies electing to not issue earnings guidance for the year ahead we may need to wait to see all these new themes emerge but it is clear there will be winners and losers once the economy is back to full speed.

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.