The technology-heavy Nasdaq 100 Index is off nearly 11% from its recent high, the index closed under its 50-day moving average for the first time in 105 days as technology stocks experienced their worst pullback since March. Facebook and Amazon each lost more than 5% over the week while Apple and Netflix slid 7.4% and 6.6%, respectively.
In contrast European stocks advanced over the week although renewed fears over a messy hard Brexit added to bearish market sentiment. Sterling weakened as tensions flared between the UK and the European Union as Britain explicitly said this week that it plans to break international law by breaching parts of the Withdrawal Agreement treaty that was signed in January.
The European Central bank (“ECB”) left its asset purchases and interest rates unchanged at its policy meeting on Thursday but the main area of interest was the recent appreciation of the euro. ECB President Christine Lagarde said the bank will “carefully monitor” exchange rate movements but sees no immediate need to intervene. The euro hit a 1-week high of $1.1902 during the press conference following the policy decision.
Phase three trials for AstraZeneca’s coronavirus vaccine have resumed in the U.K. after they were halted earlier this week over safety concerns, raising hope that one of the leading candidates in the global race to develop an injection which can stem the pandemic is back on track. The University of Oxford, which developed the vaccine in partnership with AstraZeneca, said Saturday that some 18,000 people have so far received the vaccination in trials.
Yoshihide Suga is on track to succeed Shinzo Abe as Prime Minister of Japan. Suga, the current chief cabinet secretary, is expected to be elected at an extraordinary Diet session on September 16. Suga has asserted that his primary objective would be to revive the economy, continuing with Prime Minister Abe’s current easy-money policies and government spending to revitalize Japan’s economy.
The continuing lack of progress in Congress on a new stimulus package as well as the continued volatility in the tech sector saw all the major U.S. indices down on the week with the Dow Jones (-1.66%), S&P 500 (-2.51%) and Nasdaq (-4.06%) all under pressure.
The pan-European STOXX Europe 50 Index ended the week 1.69% higher while the UK’s FTSE 100 Index gained 4.02%, benefitting from weakness in the British pound (UK stocks tend to gain when the pound weakens as a meaningful amount of UK listed companies generate their revenues overseas). In Asia the Nikkei 225 ended firmer (+0.87%) on the week while the Shanghai Composite was down (-2.83%) on continued fears of escalating U.S. Sino trade tensions.
Market Moves of the Week
The JSE closed firmer on Friday, with the benchmark FTSE/JSE All Share Index up 4.1% for the week. During the week, the government reported that the country’s gross domestic product contracted at an annualized rate of 51% in the second quarter. The quarter on quarter rate (not annualised) showed a drop of 16.4%. The decline can be attributed to one of the most stringently enforced lockdown’s in the world that started at the end of March.
Following the GDP release Moody’s maintained its forecast for a 6.5% recession for the full year. This is a relatively better outlook than that of local policymakers, with the SA Reserve Bank expecting a 7.3% full-year contraction. Finance minister Tito Mboweni is set to deliver a highly anticipated medium-term budget policy statement (MTBPS), in late October.
Chart of the Week
The NYSE Fang+ index which tracks the performance of 10 big tech companies (comprising of Facebook, Apple, Amazon, Netflix, Google, Alibaba, Baidu, Nvidia, Tesla & Twitter) was down 5.4% over the week. Still, the index is more than double its March trough. High valuations are being supported by the accelerated growth prospects of tech companies, near zero interest rates in much of the developed world and the huge liquidity created by central banks.
Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. In any market environment, we strongly believe that investors should stay properly diversified across a variety of asset classes and that clients financial plan supports their long-term goals, time horizon and tolerance for risk.
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