Global markets continue their modest recovery

For financial professionals only

Covid is not going away. We’ve all had to adapt to new routines and change our lifestyles. Just as things were becoming the new ‘normal’, infections have risen again, and stricter restrictions are creeping back in. As we know, this has had profound economic implications and the UK economy may not return to pre-crisis levels until 20231.

Light at the end of the tunnel

The last quarter ended in stark contrast to how it began. General sentiment was more upbeat in July and August which kicked off holiday season and a resumption of trade in the tourist and leisure industries. Cafes, bars, restaurants, and airlines were finally opened for business as further easing of lockdown took place.

Some of the major stock markets continued their recovery (although the UK lagged due to uncertainty over Brexit). Europe, Japan, Asia, and Emerging Markets posted positive gains over the quarter, and the S&P 500 was up over 7% (in dollar terms) in August alone – its best performance since 19862.

Corporate earnings also surprised on the upside with more than 80% of companies in the S&P 500 positively surprising versus expectations3, with the trend expected to continue for the third quarter.

Elsewhere, the global economy showed signs of improvement. Both the manufacturing and non-manufacturing industries were signalling an expansion. Closer to home, UK production rose the most since May 20144 (albeit from a low base). The services sector also expanded rapidly helped by the ‘eat out to help out’ initiative, though there were signs of this slowing after the scheme ended. Elsewhere, the housing market was buoyed by the stamp duty holiday with prices soaring to an all-time high in August5.

Schools finally went back in September which was a hugely positive step in getting the education system going again, and Boris Johnson was encouraging workers back to city centre offices. All in all, it seemed we were on the right trajectory to return to normality while scientific researchers were working hard to develop a vaccine.

A vaccine coming to fruition?

There have been a high number of vaccines in development with more than 170 candidate vaccines tracked by the World Health Organization (WHO), but only a handful are involved in large scale trials.

One began human trials in the US in September which conveniently coincided with the Centers for Disease Control saying the country needs to deliver a vaccine from early November, just days before the election. While officials say this is not meant to influence votes, sceptics may not see it that way.

Another vaccine in development with researchers in Oxford is thought to yield preliminary results in early Q4 2020, though some specialists cast doubt this can be achieved so soon.

No shot in the arm for the economy

As the third quarter drew to a close, Covid cases began rising once more and stock markets were again reacting like a yo-yo, reflecting short-term sentiment. In the UK, this was further exacerbated by the fractious Brexit negotiations.

The reality of the unemployment situation also dawned on many. Large organisations in the oil & gas, airlines and retail industries have already announced cuts to their workforce. More job losses are inevitable. Even in his attempt to unveil a new job support scheme after furloughing ends, the Chancellor admitted he can’t save every job. This will eventually feed into weaker consumer spending.

All of this will have implications for growth. The Bank of England predicts the UK economy will shrink by 9.5% this year while Covid will wipe 1.5% off UK GDP in the long term6. Though the Chancellor has postponed the usual Autumn Statement, higher taxes longer term feel unavoidable as a consequence of the ballooning national debt.


[1] 2020. No return to pre-Covid economy before 2023 [online] Available at: [Accessed 21 October 2020].

[2] 2020. S&P 500 Witnesses Its Best August In 34 Years – What Comes Next? [online] Available at: [Accessed 21 October 2020].

[3] 2020. The S&P 500 gained 5.5% in July-despite a historically bad U.S. economic downturn [online] Available at: [Accessed 21 October 2020].

[4] 2020. UK manufacturing update: Production rises as industry restart continues [online] Available at: [Accessed 21 October 2020].

[5] 2020. U.K. house prices surge to all-time high in August [online] Available at: [Accessed 21 October 2020].

[6] 2020. Bank of England tempers forecasts for UK economic rebound [online] Available at: [Accessed 21 October 2020].

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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