After five months of crashing and rebounding, global markets were calmer in July, with world indices gently rising a few percent. Meanwhile, Covid-19 spread out in the Americas and Africa, and infection rates surged again in the US. In Europe, reopening seems to have triggered a smaller second wave in many countries.
In Britain, much of the initial economic pain has been numbed by huge deficit spending. As well as the furlough scheme, government support came through industry bail outs, guaranteed loans, and targeted VAT cuts. The largesse cannot be maintained forever, and once the spending taps are wound down there will likely be a surge in unemployment. While UK stocks look cheap compared to international peers, investors should bear in mind the cyclical nature of much of the London market, and the risks of Brexit negotiations hurting prospects further.
With its large geography and absence of national lockdown, America seems to be experiencing a second wave without really getting over the first. Its stock market, however, has been the best performing among the major countries, because it is dominated by resilient sectors like technology and healthcare. The power of Big Tech was on show at the end of the month, as members of Congress grilled the CEOs of Apple, Google, Facebook, and Amazon.
President Trump changed his tune on face masks, perhaps with an eye on his nine-point lag against Democratic rival Joe Biden in the polls. Biden will announce his VP pick in early August, which could give us a flavour of what sort of changes a Democratic win in November would bring. Both candidates are relatively market-friendly, though a sweeping “blue wave” could mean higher corporate taxes and tougher regulation.
The US dollar had its worst monthly fall since September 2010, but we were well-positioned for it by hedging our US index fund into sterling, which added almost 5% performance to the fund.