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Global Markets Weekly Market Review – Week 31, 2020

The major global indices ended mostly higher for the week, as investors reacted to a flood of quarterly earnings reports and some prominent economic data. Large cap companies and growth stocks outperformed, putting at least a temporary end to the rotation into small-caps and value shares over the previous two weeks.

United States

In the United States,indices held up the much larger technology sector was also strong, helped by earnings beats from Apple and chip-makers AMD and Qualcomm. Energy stocks recorded the largest declines, dragged lower by Chevron and Exxon-Mobil following reports of steep second-quarter losses.

Corporate earnings were in the spotlight during the week, with 189 of the S&P 500 companies slated to post second-quarter results, according to Refinitiv. The imprint of the pandemic was clearly visible, with diversified industrial and materials companies such as 3M and Ecolab reporting sharp declines in revenues

The week’s results also demonstrated that some major companies are benefiting from the pandemic’s impact on consumer patterns. This was on clear display Thursday evening, when Facebook, Amazon.com, Apple, and Alphabet (parent company of Google)—which together account for almost one-sixth of the market capitalization of the S&P 500—reported mostly healthy gains in revenues despite the pandemic.

 

Index

Friday’s Close Week’s Change % Change YTD
DJIA 26,428.32 -72.49 -7.39%
S&P 500 3,271.12 52.55 1.25%
Nasdaq Composite 10,745.27 363.17 19.76%
S&P MidCap 400 1,863.70 10.72 -9.66%
Russell 2000 1,480.67 8.75 -11.26%

 

Europe

Equities in Europe fell on concerns about an economic recovery due to a resurgence in coronavirus infections, U.S.-China tensions, and disappointing company earnings. In local currency terms, the pan-European STOXX Europe 600 Index ended the week about 3.0% lower, Germany’s DAX Index fell 4.1%, and France’s CAC 40 slid 3.5%. The UK’s FTSE 100 Index dropped 3.7%.

European corporate earnings were generally downbeat in the second quarter, especially for banks. In energy, Royal Dutch Shell and Total proved resilient as strong oil trading revenues helped offset falling energy demand triggered by the pandemic. In autos, results from Volkswagen and Renault disappointed.

During the week,the European Central Bank (ECB) extended its recommendation to eurozone banks not to pay dividends and buy back shares until January 2021. It also allowed the banks to breach their liquidity and capital buffers to cope with the impact from the coronavirus. The ECB urged banks to exercise “extreme moderation” on bonuses. The ECB said it will review its stance in the fourth quarter.

Asia

Stocks in Japan recorded five consecutive daily declines and the worst weekly market return since April. The Nikkei 225 Stock Average fell 1,042 points (4.6%) and closed at 21,710.00. The widely watched market benchmark has returned -8.2% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also posted steep losses. The yen strengthened and ended the week below JPY 105 per U.S. dollar, which has market participants rattled as currency strength will be a headwind for exporters.

The Japanese Cabinet Office lowered its GDP growth forecast for fiscal 2020, which ends in March 2021, to a 4.5% contraction due to the impact of the global pandemic. The latest forecast represents a steeper decline than in fiscal 2008 following the global financial crisis and represents a massive revision from the 1.4% growth forecast six months ago. The dour forecast reflects recessionary conditions and the likelihood of another round of stimulus. Looking ahead to fiscal 2021, the Cabinet Office believes that Japan’s economy will grow 3.4% if the coronavirus is contained and global economic conditions recover to a semblance of normalcy.

China – Mainland equity markets rallied on positive data despite elevated U.S.-China tensions and floods in the country’s Yangtze River basin. The large-cap CSI 300 Index rose 4.2%, and the benchmark Shanghai Composite Index gained 3.5%, reversing the previous week’s declines. A-share funds suffered outflows during the week after a correction the previous Friday, with institutional outflows outweighing retail investor inflows. Northbound Stock Connect (investments in mainland stocks by Hong Kong-based foreign investors) saw significant net outflows, especially in financial stocks.

China’s official purchasing managers’ index readings for July were positive despite a resurgence in coronavirus outbreaks in some areas. New orders rose 0.3%, boosted by a 5.8% surge in export orders. June industrial enterprise sales and profits were also positive. Industrial profits accelerated to 11.5% year on year from 6% in May, reflecting a recovery in industrial output and easing factory gate deflationary pressures. Data suggest that the pace of China’s recovery remains uneven, however, as smaller manufacturing firms lag larger state-owned enterprises.

Investors were braced for a record RMB 1.36 trillion of restricted shares scheduled to be unlocked and available for trading in the A-share market—an influx similar to one that occurred in May and June 2015, which was followed by heavy selling of previously restricted shares by large institutional investors. Some analysts believe that lower current valuations and positive fundamentals might provide institutional holders less reason to sell unlocked shares, however.