MARKET UPDATE – MAY 2020
Following the worst quarter for global equities since 2008, equities rebounded for their best month in more than 10 years, rising by 11.1% in euro terms. Over the course of the month, the extreme measures to contain the spread of the virus in Europe saw hospital admissions declining in Italy and more importantly the numbers requiring ICU admissions falling. New hospital admissions in New York also began to move lower. Expectations for the beginning of a gradual return to normal grew. China has already begun this process, with restrictions being eased.
Elsewhere, the extreme stress in global funding markets continued to abate. Credit spreads have tightened dramatically, helped by the US Federal Reserves decision to venture into the high yield credit market, another landmark decision to add to the many interventions that global central banks have made. Implied volatility has fallen. Further evidence of the rapid bounce back in Chinese activity came as leading corporates in sectors from luxury goods to staples confirmed the pickup we had seen in the on ground economic data (traffic, steel consumption, auto sales etc). This bodes well for the Wests eventual reopening. Two European travel and leisure companies highlighted how strong forward bookings are as people rebook rather than cancel, setting the stage for a demand squeeze in H2 as pent up demand of H1 meets natural demand of H2.
Technology stocks continued to lead the market higher as they reported. They confirmed seeing short term benefits from this crisis (streaming subscriptions accelerating, online credit card spend in the US +50 percent, gaming devices sold out, use of data increasing) and also cementing their lonterm position as the inegral infrastructure of the next decade.