Week from 6 to 13 September 2020
Financial markets swung wildly all week long in volatile trading marked by further selling of high-flying tech stocks (Apple: -7.4%, Netflix: -6.59%, Facebook: -5.7%, Microsoft: -4.77%) and worries about slowing growth in job creation while the hope for another stimulus package before the US presidential election dimmed.
However, a Wall Street Journal survey stated that the US gross domestic product will grow by 23.9% on an annualized basis in Q3, up from a consensus of 18.3% a month earlier. Similarly, Goldman Sachs economists see Q3 GDP growth tracking at 35%, but such prospects did not reinvigorate bulls.
Tech extended its recent decline after President Donald Trump promised massive tariffs on China and a decoupling from its economy if he is re-elected. The tech-heavy Nasdaq therefore tumbled 460 points, or 4.06% over the week (the worst one since mid-March). Simultaneously, the S&P500 slumped 2.51% and the Dow Jones Industrial Average fell 2.3%.
As regards the S&P sectors, we can copy and paste last weeks ranking. The losers are the same. Energy led the pace downward, falling 6.43% as oil prices nose dived (WTI down 6.14%) after US crude inventories unexpectedly rose last week. Information technology was the second biggest decliner over the week (-4.36%) as the sell-off in big tech stocks intensified. Communication services (-3.34%) and financials (-2.36%) were also hit hard. Only one sector managed to stay in positive territory (materials: +0.82%).
For once, it is worth noting that European markets were resilient, showing little correlation with the US (DAX 30 and CAC40 up 2.8% and 1.39% respectively). The FTSE 250 midcap index, a good proxy for Brexit risk, even rose by 0.58% in spite of Boris Johsons new risky gamble. The British government indeed unveiled a draft Brexit law on Wednesday to rewrite parts of its EU withdrawal deal, pushing EU President Ursula von der Leyen to warn that such a move would jeopardise a future trade agreement. Furthermore, Nancy Pelosi, Speaker of the US House of Representatives, said that Britain would be unable to secure any trade deal with the US if Brexit violated international treaty and threatened peace in Ireland. The pound has logically weakened against the euro (-3.71% at 1.0801) and the US dollar (-3.76%, slightly below 1.28) as trade talks now appear to be stalled.
In Asia, equity markets closed mixed with Australia and China in the red (Shanghai Composite: -2.83%, Hang Seng: -0.78%, S&P/ASX 200: -1.12%), and Japan and India in the green (NIFTY 50: +1.15%, NIKKEI: +0.87%).
On the interest rate front, the US 10-year Treasury yield dropped 5 basis points from +0.72% to +0.67% while its German counterpart remained virtually unchanged at -0.48%. At the same time, the UK 10-year Gilt yield slipped from +0.265% to +0.184%.
Overall, prices of corporate bonds were relatively stable (investment grade bonds: -0.10% in Europe, +0.11% in the U.S. ; high-yield bonds: +0.10% in Europe, -0.42% in the U.S). Calm also prevailed in emerging bond markets (+0.10% in local currencies).
Lastly, gold rose 0.69% to $1,939.50/oz, while EUR/USD traded 0.28% higher at $1.1831.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-09-11/global
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