August was a record setting month for markets and economic data. The most notable of these was the new high reached in the US by the S&P 500, breaching the previous level reached in February and having fallen over 33% and recovering in the interim. This marks the sharpest ever recovery for the index following such a fall. Elsewhere, the gold price also set a new high, blasting through the $1909/oz set in 2011 in the aftermath of the financial crisis, and hitting $2071/oz before falling back. As concerns over the extraordinarily accommodative monetary policy grow, gold’s appeal has expanded outside of its usual cluster of avid followers, towards being a more mainstream component of investor’s portfolios.
The month saw the release of economic data for the second quarter, also breaking records. The shutdown of most major economies in March and April meant that economic performance for the period was dire. Most developed countries saw quarter on quarter contractions of 10-20%, although the data did not surprise market expectations. However, fast moving economic indicators suggest that most economies are bouncing back rapidly from the depths of the lockdown, although consensus expectations are that it will take until 2021 before the lost ground is regained. Furthermore, this will be dependent on no further disruption and a gradual return to normality.
Elsewhere, the US Presidential election is now fast approaching, with now only two months to go until polling day. While current expectations are that Biden will win by some margin, as history has proved, nothing is guaranteed. While there are clear differences in views and policies between the two candidates, it is unlikely that there will be a wholesale change in direction in the market critical areas. Fiscal policy is likely to remain loose under both a Biden or Trump presidency, although acknowledging that this may be allocated to different areas, and US foreign policy will probably remain assertive regarding China and trade, albeit less confrontational under Biden. Although there will be a lot of noise as election day approaches, the impact to markets is unlikely to be significant, and once the day passes, the removal of uncertainty may well be a benefit.
The equity market continues to be driven by a narrow set of companies that have seen their valuations climb even through the tough economic environment. The most prominent of these has been Apple, which achieved a $2tn valuation in August, barely two years after passing $1tn. While these companies have benefited in many ways from the pandemic and government actions and may continue to do so, many are now questioning if the current valuations accurately reflect their prospects.