InvestNow News – 5th June – Pie Funds – CIO Report: In May, even laggards performed

5th June 2020

May was another month of strong returns for equity markets…

IT’S (NOT) THE ECONOMY, STUPID

May was another month of strong returns for equity markets and now some markets, such as the technology focused Nasdaq, are trading at record highs and well above where they started the year. This highlights the unpredictability of markets how they turn far before the economy does and the difficulty of predicting short-term movements.

Markets continue to climb the wall of worry and investors are cautious about what happens when the government stimulus life support is taken away. If economies are stuttering when support is withdrawn, I believe governments will simply reintroduce more government stimulus. The next round of stimulus, however, is likely to be more targeted towards particular industries that have had growth curtailed rather than the blanket-based emergency approach introduced hurriedly across the world in March

From my perspective I keep reminding myself the stock market is not the economy. The wider economy is suffering and there have been significant job losses, however, listening to many public companies in calls they are faring amazingly well during the downturn. These companies are typically larger, more resilient and will come through the crisis in a stronger position than the many smaller companies that comprise the economy. Furthermore, 20% of the S&P500 is made up of the five largest stocks Microsoft Apple, Amazon, Google and Facebook which all have strong balance sheets, structural growth trends and wide economic moats and are likely to continue outperforming the wider economy.

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