The week to Tuesday’s close saw equity markets lose ground as investors took profits on the substantial gains we have seen since the March lows. This is very much in line with our expectation that we would see a technical rally of 30% to 50% of the fall after which investors would need yet more positive news to make further progress and the slightly more defensive central asset allocation we adopted at the start of the month.
For the past six weeks investors have largely ignored bad news as they looked across the second quarter of the year’s ‘V-shaped‘ chasm in economic activity to the third and final quarter, where we have largely exited lockdown and are returning to business as usual. Or to the ‘new normal’. What follows now is a period where much of that bad news arrives in the form of company trading updates, economic statistics and business surveys that simply show what we already suspect but nonetheless will dampen the animal spirits needed to propel markets higher.
The week saw the FTSE All-World Index of global equities decline by 2.5%, the UK FTSE 100 Index by 4.3% and the Euronext 100 by 4.1%. The US fared better with the S&P 500 Index declining by 2.5% though the S&P 400 MidCap Index, which better reflects ‘middle America’, fell 5.4%.