Markets in a Nutshell - August 2020

Global equities continued their rally as earnings season produced better-than-feared results and hopes for a COVID-19 vaccine grew on promising early trial results. Emerging markets outperformed on dollar weakness and increased global risk appetite while US and European bourses also advanced despite rising second wave pandemic infection rates clouding the economic outlook. The EU resolution on €750 billion of fiscal stimulus and a Republican proposal for a further $1 trillion package in the US provided market support.

Global developed market sovereign and highly-rated corporate bond yields remain anchored at record lows with more than 60% of global debt trading below 1.0% and 85% below 2.0%. July’s US Fed meeting reinforced expectations that interest rates will remain low for the foreseeable future. Precious metals gold and silver led gains in commodities, driven by global central banks pinning interest rates near zero, unprecedented peacetime fiscal deficits and emerging US dollar weakness. The US dollar declined against the euro, British pound and Japanese yen.

The Foord global funds’ 2020 year-to-date performance was maintained despite increasingly narrow market leadership. The top five US tech companies have gained more than 35% this year and now account for 20% of the S&P 500, while the index’s remaining constituents have fallen approximately 5% in an increasingly bifurcated and risky market.

The path to a full economic recovery is considerably uncertain given increasing geopolitical tensions, expensive equity valuations, US elections and the COVID-19 pandemic. The managers remain cautious and the funds retain S&P 500 hedges to protect against these elevated risks.