Investment team updates - bullet points 14 August
Insights

Investment team updates – bullet points 14 August

Fixed income

  • Core bond yields have risen slightly over the course of the week, with the US 10-year ending Thursday 13 August at 0.70%, up from 0.58% on Monday.
  • Credit spreads continued to outperform this week, grinding tighter over the past few days, including EM spreads.
  • After a better day on Wednesday 12 August, when the S&P 500 rose 1.4%, equities were off again a little on Thursday.
  • Tuesday saw gold have its weakest day in about seven years, down around 6%. Then Thursday saw silver rally 7% as precious metals regained some strength after a recent sell off.

News

  • Covid-19 cases have now topped 20 million globally. Russia granted regulatory approval for a vaccine, but this has been met with scepticism in some quarters.
  • There were better US Jobless Claims, which were less than 1 million since the crisis began. However, still no fiscal package has been agreed yet, with a stalemate between the Republicans and Democrats. US inflation, meanwhile, spiked higher 0.6% month-on-month, which is the largest single month increase in a few decades.
  • Results season is finishing and overall it was not as bad as feared.
  • UK employment fell by 220,000 in period from March to June – more is to come in July. Meanwhile, UK GDP was -20.4% in Q2 – the weakest in Europe and since records began in 1955 – although there was a rebound in June.
  • The latest RICS survey shows ongoing strength in the UK housing market in June and July, supported by the stamp duty cut. And in July UK BRC retail sales were up 3.4% year-on-year.
  • Mexico cut rates by 0.5% to 4.5%.
  • Israel and UAE normalised diplomatic relations.

US equities

Markets

  • US equities rallied again last week (ending 7 August), with the S&P 500 and the Nasdaq both up by 2.5% and the Russell 2000 up by 6%. The S&P 500 is now just 1% below all-time highs.
  • Markets moved higher on some solid economic data and continued strength of Q2 earnings relative to expectations. All sectors were higher, with value and cyclicals leading the rally with this posture carrying on into Thursday 13 August. Industrials were the best overall performers followed by financials. Tech also had a good showing led by Apple and Microsoft. Real estate and healthcare lagged.
  • This broadening of the market rally away from tech into more cyclical names suggests we are seeing some more confidence in the economic recovery and prospects for a vaccine.

Economy

  • There were a few notable bright spots in data releases which highlight this recovery theme: July ISM manufacturing, non-manufacturing and non-farm payrolls all surprised to the upside, and jobs were added for the third straight month in July, though at a slower place. However, overall gains in the jobs market have not yet restored half of those lost during the pandemic.
  • The better than expected data and continued optimism over a vaccine has helped guide this rotation of money out of year-to-date winners and into laggards.
  • The next coronavirus relief bill has been the subject of debate in Congress. The previous set of benefits rolled off on 31 July and, due to the deadlock between Republicans and Democrats, President Trump signed off a number of executive actions over the weekend to provide some temporary relief, including $400 weekly payments for jobless assistance, which is down from the $600 people received under the previous package. This is, however, secured through to December. There was also extended relief for student loan payments and payroll tax deferment.
  • The expectation is that Congress will still come to an agreement on a more comprehensive package, and there is a strong feeling that this is crucial so as not to undermine the nascent recovery. Expectations are for a $1.5 trillion+ package.

Earnings

  • We’re nearing the end of Q2 reporting season, and by the end of last week 89% of the S&P 500 by market cap had reported.
  • So far, earnings are declining -32.8% year-on-year for Q2. This would mark the biggest quarterly decline since 2008, although earnings have actually surprised with a big beat to the upside against a backdrop of drastically cut expectations and the withdrawal of guidance following Q1 earnings. If cyclicals are excluded the decline rate improves to -12.3%.
  • Earnings have beaten estimates by 23% in aggregate, with 81% of companies beating their projections.
  • This has also generated a fair degree of optimism for Q3, with consensus estimates for the quarter so far revised upwards by 3%.
  • Tech earnings have grabbed the headlines, but the biggest beats have come from industrials and consumer discretionary. Industrials have done well to manage their costs and consumer-facing stocks benefited from the stronger than expected initial reopening trend.

European equities

  • Covid-19 flareups across Europe continue, but all eyes are on the US experience and the subsequent political implications.
  • Results in Europe and economic data show an interrupted V-shaped recovery, but a sharp one.
  • We have increased weightings in some high-quality cyclicals left behind in the post-March rally – defensives are standing on more expensive valuations by comparison.

Multi-asset

  • Market sentiment continues to be driven by a fast-moving virus dynamic, robust but decelerating growth and a step-down in US fiscal policy.
  • In economic news, PMIs pointed to a continued recovery, but with pockets of weakness in areas such as employment.
  • Meanwhile, virus developments have been varied with the US continuing to bring caseloads under control, while Europe shows signs of a second wave.
  • Attention has been on Q2 earnings season, where deep contractions – the greatest since the global financial crisis – have generated the largest beats to depressed expectations over the same period, and lifted relative optimism for Q3 earnings growth.
  • The shape of delivered earnings has favoured compounding sectors, suiting our preference for quality.
  • No changes were made to EMEA asset allocation, which continues to favour US and Asia within equities, alongside corporate credit.
14 August 2020
investment_solutions_logo
Investment Team Updates
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics
apple-podcast
Spotify
listen-on-Stitcher-badge
castbox
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics

PDF

Investment team updates – bullet points 14 August

Note: all data as at 13 August 2020, unless otherwise specified. Source: Bloomberg

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

25 February 2021

Iain Richards

Head Of Responsible Investment

Climate change, net zero and the employment myth

Press headlines have suggesting that as many as 10 million UK jobs would be at risk from the UK’s transition to net zero over the next three decades. Is that really the potential implication of the UK’s decarbonisation plan?
Read time - 8 min
22 February 2021

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot - February 2021

Our fixed income team provide their weekly snapshot of market events.
Read time - 3 min
12 February 2021

Paul DiGiacomo

Head of Equity Research

Covid-19 index: when might life return to ‘normal’?

With every country attempting to return to normality following the coronavirus pandemic, we are monitoring US economic activity as well as other measures of 'normality' such as entertainment and leisure, high street shopping, and schools reopening.
Read time - 5 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.