Global equity markets continued to show encouraging progress in May, gaining almost 5% after a rise of more than 10% in April, an exceptional month.
The markets are hoping there will be no setbacks in the fight against Covid-19 and the measures for easing lockdown. As such, they seem to be banking on a “return to normal” in the next few months, along with the economic progress that should come with it. Above all, they are hoping that the worst is behind us from an economic point of view.
It goes without saying that highly accommodative monetary policies have boosted the markets, with the central banks making every effort to preserve low rates in the bond segment. Moreover, the markets’ watchword throughout the last decade, TINA, or There is no alternative, continues to apply. In the current environment, equity markets are continuing to reap the benefit of this lack of alternative for investors.
While the economic figures published to date are still weak, confidence indicators suggest that the worst is behind us.
The picture was no rosier in May, particularly for the US economy, with retail sales, industrial output and demand for consumer durables all falling by more than 10%. PMIs fell significantly until April, but have since gained some, albeit limited, ground. For the economy as a whole, it is crucial for confidence to return to the private sector, which stands at the threshold of a relatively new era that will see a whole new approach to consumption and production.
The eurozone is no exception: the situation here is exactly the same. Economic data are still deep in the red, but the Composite PMI (which reflects the overall state of economic activity) has made positive strides, providing some encouragement for the next few months. In addition, the European Commission has put forward a stimulus package worth EUR 750 billion, which is crucially important not only for combating the adverse economic effects of the pandemic, but above all, for preserving the economic and political union.
Liquidity and hopes of a return to normal were the driving forces in the equity markets again this month, as lockdown measures are gradually easing in Europe. Risks, particularly health risks, are very much present, leading us to maintain our cautious stance with a neutral overall allocation.
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