18 May 2020

Good Morning,

Equities paused for breath last week as the debate continues around the shape of the recovery to come, with comments from Fed Chair Powell amongst those hitting markets. It could be an ‘L’, ‘U’, ‘V’, ‘W’ or even a ‘swoosh’. Whichever your letter of choice is there is liable to be many twists and turns on the road ahead. The short term battle between fundamentals and liquidity continues to rage.

As Ireland goes back to ‘normal’, what does that really mean? Some Millennials are experiencing their second recession in their first ten years in the workforce.  They were already making way for Gen Z, who could now be renamed as ‘The Zoomers’. This demographic may well represent the first cohort of graduates entering the workforce as ‘native work-from-home’ employees; as the acceleration of societal change continues.

Within our own equity portfolios we are positively biased towards technology and healthcare stocks and negatively biased towards energy and banks. Overall, we remain vigilant of the potential for a short-term drop in equity markets and have further increased our allocations to medium-term corporate bonds in the last week.

As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.

Weekly Investment News

Equities saw choppy trading last week before finishing the week lower as a number of key officials tempered optimism. Dr. Anthony Fauci struck a cautionary tone when commentating on the risks of reopening too quickly, whilst Fed Chair Powell remarked that the path for a U.S. economic recovery may extend to the end of 2021.

U.S.-China tensions were also back in the spotlight as diplomats from both sides sparred on the pandemic, trade deals, and press freedom in Hong Kong. The U.S. also moved to tighten restrictions around U.S. companies supplying Huawei. U.S. chip makers equities such as Qualcomm saw price falls as a result.

Economic data continued to see large declines, as measures of U.S. industrial and retail activity collapsed in April, with both seeing the largest monthly drops since records began. Inflation figures also continued the negative data trend as the U.S. Consumer Price Index fell 0.8% as the fall in demand outstripped the fall in the supply. Lower oil prices throughout April would also have contributed to the drop, although there has been a strong rebound in prices so far in May namely on the back of increased collaboration between Saudi Arabia and Russia. Democrats in Congress led approval for the latest stimulus package but it remains to be seen if it has sufficient bipartisan support.

Development of a COVID-19 vaccine continues as a number of new initiatives and funding were announced from a number of countries. However, even the most promising of proposals remain in the early stages.

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