Is the “bear market rally” over? America’s S&P 500 index finished last week 6.9% off its 8 June high, says Chuck Jones on Forbes. The problem is a surging coronavirus epidemic in the southern states, with new cases across Texas, Arizona and Florida more than quadrupling since the start of June. Add in “very high” equity valuations and it is difficult to see how this rally continues.
The FTSE underperforms
America’s Covid-19 failures are now difficult to ignore, says John Authers on Bloomberg. Mobility data in affected states is sagging again even as levels in much of Europe return to normal. Hotel, cruise and airline stocks have come under renewed pressure.
Talk of a “trade-off” between fighting the coronavirus and saving the economy has proved a false choice. If Covid-19 is rampant then consumers will choose to stay home, preventing the economy from functioning normally.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
On this side of the Atlantic, markets have probably learnt to live with the idea that there will be “occasional flare-ups” in cases, says Jim Armitage for the Evening Standard. Yet the FTSE still finished the second quarter on a gloomy note following news that UK GDP fell at its fastest pace in 41 years in the first quarter.
The FTSE 100 finished the second quarter this week up 9%, its best return in a decade. Yet it remains down 18% for the year as a whole, significantly worse than the 5% fall on the S&P 500 or the 8% decline on Japan’s Topix and Germany’s Dax indices. The London market remains a “serial underperformer” compared with other major markets, says Michael Hewson of CMC Markets.
The easy money has been made
There is an argument that US stocks are actually cheaper than they should be, says James Mackintosh in The Wall Street Journal. Near-zero interest rates are locked in for the foreseeable future and Treasury bond yields are “on the floor”, so their yields will not tempt equity investors.
With money so cheap, financial models imply that stock valuations should be high. Savers, after all, have few other places to earn a decent return. Yet vertiginous valuations are starting to induce “altitude sickness” in some investors, says Edward Bonham-Carter of Jupiter Asset Management. The resurgence in US coronavirus cases will keep stock markets under pressure for now, reckons Oliver Jones for Capital Economics. Yet we are far from bubble territory. One reason that valuations look so high is because analysts have slashed earnings forecasts for this year, but profits should rebound once the pandemic is behind us. Equities are poised to outperform, just so long as runaway virus outbreaks don’t force any major economies back into lockdown again.
Talk that much higher earnings are just around the corner sounds like bubble logic, says Randall Forsyth in Barron’s. Globally, stocks have just had one of their best quarters in decades. Markets are not necessarily heading for a crash, but it seems the “easy money has been made… caution should be the byword”.
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
-
What does Rachel Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
-
What’s the outlook for the shipping industry in 2025?All we know for certain about the year ahead is that it will be volatile. But the container shipping sector thrives on choppy waters
-
What investors can expect from stocks and the economy in 2025There are reasons for investors to be hopeful about 2025, with slowing interest rates and moderating oil prices. But trouble may be brewing in bond markets
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
Can The Gym Group pump up your portfolio?Gym Group was one of the best UK small-cap stocks in 2024 and will beef up your profits this New Year
-
MoneyWeek's five predictions for investors in 2025MoneyWeek's City columnist gazes into his crystal ball and sees five unexpected events in store for investors in 2025
-
How buy-and-build stocks deliver strong returnsBunzl, DCC and Diploma became successful through buy-and-build – rolling up dozens of unglamorous businesses. How does it work and what makes it successful?
-
Singapore Technologies Engineering shows strong growthSingapore Technologies Engineering offers diversification, improving profitability and income
-
South Korean won hits 15-year low – what it means for 'Korea discount'After Yoon Suk Yeol's failure to declare martial law, South Korean markets are reeling, with the weakest won since 2009. Will this worsen the Korea discount?
