New stock-market records
August was another strong month for the stock markets, with several all-time highs. For the S&P 500 Index in the USA, we have to go all the way back to 1986 to find as strong a month.
For the month, the American S&P 500 Index rose by 7.2 per cent measured in USD, while the European Stoxx 600 Index climbed 3.1 per cent measured in EUR. In Norway, the Oslo Stock Exchange (OSEBX) rose by 4.0 per cent measured in NOK during the same period.
The global stock markets, with the USA at the forefront, set all-time highs in August and have thus recouped the entire COVID-19 crash in five months. The S&P 500 had a particularly good month. So far in 2020, the technology sector is in front driven by changed consumer behaviour linked to COVID-19. Energy and finance are clearly lagging, weighed down by travel restrictions, bankruptcies and low interest rates. The credit spreads have also recouped almost the entire widening since March, while government bond yields are still low despite the rise since July.
Supported by macro
The upturn is also supported by the macro figures and compared to the analysts' expectations the macro figures have never been as surprising on the upside as they are now. However, this follows a period of low expectations. At the same time, we see that the Purchasing Managers' Index (PMI) figures and manufacturing barometers have also recouped the entire fall and followed a so-called 'V' trajectory. In addition, unemployment has fallen quickly, although it is still at a higher level than before COVID-19. GDP growth is also expected to increase sharply in the third quarter – after a historical fall in the second quarter.
The Fed adjusts the map
The US central bank (Fed) announced several changes in August. The most important one was that the inflation target was to become an average target. That means the Fed will look at inflation over a longer period and potentially allow it to exceed the target for periods. Over the past decade, inflation has been below the target for long periods. The production gap will also play a less important role, and low unemployment does not necessarily mean higher interest rates if inflation also remains low. In total, the Fed will have more room to manoeuvre and is in many ways also adjusting the map to fit the terrain.
The road ahead …
The stock markets were strong in August. Based on "the trend is your friend" and due to the lack of other good investment alternatives, shares will probably remain investors' first choice. At the same time, we are now in September, when stock markets usually take a short breather. With a sharp rise in recent months, we are not surprised if it also happens this year.
"I think any statement about stock prices is always suspect unless it's made by Warren Buffett"