Global equities continued to make new highs led by the relentless upwards march of technology stocks. Abundant liquidity, policy stimulus, and a weakening US dollar have created the fertile conditions necessary for speculative excess. Outside of the technology sector returns were more muted and the bifurcation in returns between the perceived Covid winners and losers remains extreme.
The disease outlook remains the key variable for both economies and markets. The economic data remains mixed. Certain segments such as retail sales and housing transactions have recovered strongly while business investment and employment remain depressed. Indeed, US new and existing home sales hit their highest levels for ten years. New home sales were especially strong. September and October are key months for many businesses, particularly those exposed to business investment, and will provide a gauge of the strength and sustainability of the recovery. Should a vaccine prove effective there is the tantalising prospect of synchronised global recovery sometime in 2021. If this materialises then the current narrow equity market leadership will broaden out significantly.
Little newsworthy came out of the minutes of the July meeting of the Federal Reserve. Investors’ attention is now focused on the bank’s September meeting later in the month. The focus will be on the outlook for monetary policy and specifically whether the central bank is likely to deploy yield curve control. This has become particularly sensitive for markets given the recent pick-up in inflation expectations and the associated sell-off in longer dated government bonds.