Mid-week update: 13 May 2020

Equity markets made modest progress during the week to Tuesday’s close, driven by rising expectation of another huge rescue package in the US and by further easing of lockdowns.  However, the final day proved more challenging, with equity markets closing lower as investors moved to take risk off the table.  The US S&P 500 Index rose 0.8%, the UK All-Share Index by 2.2% and the Euronext 100 Index by 2.1% on the week in local currency terms.

We’ve mentioned our expectation that there would be a technical rally of 30% to 50% of the fall previously. With that stage now completed investors are focusing more closely on risks, with optimistic bulls pointing to the huge injections of money by governments as a driver both of asset prices and a ‘V-shaped’ economic recovery and pessimistic Bears to the inevitable wave two of infections and lockdowns that will give us a ‘U’, ‘W’ or perhaps ‘bath tub’ shaped recession.  To date the long-standing mantra that investors should not ‘fight the Fed’ – the US central Bank – has provided strong support for the Bulls but as we saw with Quantitative Easing following the financial crisis, each successive intervention will have less impact.  They are expected, so are already largely reflected in asset prices.