Market Commentary

Markets remain turbulent but continue to trend higher, climbing a wall of worry.

A string of stronger than expected economic data continues to support the bull market thesis, with the Nasdaq technology index at fresh highs, and closer to home the New Zealand market is just 4% off its high.

The positive news-flow seems to be outweighing concerns around a second wave of COVID-19, and the re-escalation of trade tensions with China. Notably in the US, unemployment data continues to surprise on the upside and the US has now recovered about one-third of the job losses experienced in March and April. Similar trends are being seen in NZ and Australia and we have been surprised by the strength in data points such as retail sales which are back above levels seen at the same time last year. It remains to be seen as to whether this is being driven by pent up demand and if it is sustainable once the fiscal support packages from governments expire.

The macro-economic backdrop remains confusing with a solid rebound in economic activity around the globe, but some countries (US, Brazil, India) are experiencing a renewed surge in COVID-19 cases. Interestingly, hot spots including Arizona, Florida and Texas continue to see cases rise. However, the fatality rate has remained low.

Even as cases surge in parts of the USA, there is little political appetite to re-enter full lockdowns, so we are about to experience an interesting and potentially dangerous experiment. At what point does the trade-off between economic activity and the pain of lost lives become too costly? A lack of political leadership in the US is compounding the confusion, but so far the “open at any cost” camp is in the ascendant.

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