Monthly Market Snapshot: August 2020

A monthly update on equity, fixed income, currency and commodity markets.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Equities

Global equities (+5.8%) rose in August, ending the month with a 4.4% yearto- date gain. Markets were bolstered by the impact of the massive fiscal and monetary stimulus from governments and central banks, further signs of a recovery in global economic growth, and the potential for COVID-19 vaccines in the near future. A resurgence in coronavirus cases in some European countries, notably France and Spain, and parts of Asia increased the prospect of renewed containment measures that could impact the trajectory of the global economic recovery. Despite this, economic indicators signaled that global growth continued to recover, if at a more moderate pace compared to the previous two months. US-China tensions escalated on several fronts, but the two countries reaffirmed their commitment to the phase-one trade deal.

US equities (+7.2%) rose for the fifth consecutive month. Monetary support from the US Federal Reserve (Fed), improving coronavirus trends, better-than-expected corporate earnings, and optimism about potential COVID-19 vaccines helped to drive the S&P 500 Index to all-time highs, erasing all of the market’s losses since the onset of the pandemic. Net long positioning was the highest since early March, and the Chicago Board of Options Exchange Volatility Index neared its lowest level since late February, signaling diminishing concerns of a near-term decline in equities. Nevertheless, the path to a sustainable economic recovery is clouded by the uncertain trajectory of the coronavirus and an undetermined vaccine timeline, risks of further stimulus delays or the premature withdrawal of fiscal support, high unemployment, and elevated debt burdens.

Republican and Democratic lawmakers failed to reach an agreement on a fifth coronavirus stimulus package. Negotiations are poised to intensify ahead of the September 30 funding deadline, with the market anticipating additional fiscal aid of US$1.5 trillion. At the end of August, 98% of companies in the S&P 500 Index had reported second-quarter earnings, with 84% exceeding consensus forecasts. In aggregate, earnings were…

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