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Markets rebound sharply as many countries start easing lockdown restrictions

Market Commentary Q2 2020
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Market Commentary

Q2 2020

Markets rebound sharply as many countries start
easing lockdown restrictions


The COVID-19 pandemic and its ongoing uncertainty continued to dominate global news flow in the second
quarter. The pandemic has spread across most countries and at the time of writing, there were more than 11
million confirmed infections and more than 500 000 deaths. In South Africa, the number of confirmed cases
is more than 200 000, with more than 3 000 people having lost their lives. Notwithstanding the escalation in the
number of cases, many countries have started to ease restrictions, allowing for more economic activity. More people
have resumed their normal duties, albeit at a slow rate as governments try to find the delicate balance between rising rate
of infections and the “cost” of restrictions on economic growth.


Global stimulus supports markets


Many of the major benchmarks bounced back strongly in the second quarter from the multi-year lows reached in March. The unprecedented downturn in global economic data has largely been shrugged off by stock markets as investors look towards a post COVID-19 world.
Many economics reports published earlier in the year tried to predict whether the world will experience a ‘V or U’ shaped recovery from the pandemic. The World Bank’s Global Economic Prospects Report forecasts that the global economy will decline 5.2% in 2020 before gradually recovering 4.2% in 2021. Global equity markets appear to have experienced a ‘V-shaped’ recovery. The MSCI World Index rallied 19.5% in US dollar terms, from being down 20.9% in the first quarter. Importantly, the sheer magnitude of the liquidity injection that has been provided by central banks across the globe, however, has certainly offered support in this regard.
In the US, the Fed’s balance sheet soared past $7 trillion compared to just more than $4 trillion at the start of the year.
In addition, the fiscal stimulus package issued by the US government – which is expected to amass to well over 10% of GDP – may also have provided market participants with some hope of a strong rebound in economic activity in the future. The S&P 500 Index has erased nearly all of its March losses. It gained 20.5% for the quarter and is now down only 3.1% for the year-to-date, from being down 19.6% in the first quarter. The resilience of mega cap stocks such as Microsoft, Apple, Amazon, Alphabet and Facebook – which represent roughly 20% of the S&P 500 – have emphatically propelled the rebound in the S&P 500.

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