Market Update

Despite the unusual summer with cancelled vacations and kids returning to school, positive economic data has continued to flow in.
However, media coverage this week highlighted equity market declines, particularly on Thursday (September 3, 2020), when the FTSE-100 and US indices experienced notable drops. The FTSE-100, which initially gained nearly 1%, ended down over 1.50%. Meanwhile, the Dow Jones closed down 2.78%, and the S&P 500 fell 3.51%, followed by additional dips on Friday (September 4, 2020).
While these declines were significant, it's crucial to keep them in perspective. The two-day fall in the S&P 500, for instance, merely took it back to levels seen just two weeks ago. Historically, similar setbacks have proven to be temporary, with losses being recouped within a month.
We interpret this decline as a natural correction, a removal of excess from equities after recent gains, rather than the beginning of a deeper market correction. Maintaining a long-term perspective is essential, resisting impulsive reactions during periods of market volatility.
While challenges persist, such as the upcoming US Presidential election, political stalemates over a new US fiscal stimulus package, the phasing out of UK’s support measures, and Brexit, these risks are not novel. Central bank policies remain supportive, and economic data continues to improve, indicating that an economic recovery, whether 'V-shaped' or 'Nike Swoosh' shaped, remains intact.
For instance, the Fed recently underscored its supportive monetary policy by adopting an average inflation target of 2%, allowing inflation to run above 2% following periods below. This indicates prolonged low US interest rates, benefiting global equity markets.
Additionally, positive economic signals persist globally. China's services PMI rose to 55.2 in August, reflecting a strengthening economy, and the US ISM manufacturing survey for August exceeded expectations. Moreover, US employment data for August showed positive signs, with 1.37 million jobs added and a decrease in the unemployment rate to 8.4%.
Looking ahead to the coming week, key events include the US weekly jobless claims data and the European Central Bank (ECB) monetary policy meeting, where any dovish message could positively impact equity markets. Other significant releases include UK GDP for July, UK industrial and manufacturing production, Chinese trade balance, and US and Chinese CPI inflation. Stay tuned for updates in our next commentary.