Upturn despite new outbreaks

The stock markets continued to rise in July despite new coronavirus outbreaks worldwide. At the same time, the companies' second-quarter reports provided a lot of support to the markets.

For the month as a whole, the US S&P 500 Index rose by 5.6 per cent measured in USD, while the European Stoxx 600 Index fell by 0.9 per cent measured in EUR and the Nordic VINX Index increased by 3.3 per cent measured in NOK. During the same period, the Oslo Stock Exchange (OSEBX) rose by 3.9 per cent.

New coronavirus outbreaks

While several countries are now attempting to normalise the situation, we see that many are having to take a step backwards as a result of the spread of COVID-19 increasing. This has been particularly visible in the USA, where the infection figures are rising at an alarming rate in some states. In Europe too, there are signs of some new outbreaks, although the situation seems to be far more under control than in the USA. At the same time, several European countries are still closed to foreign travel, and this is particularly affecting the tourist economies.

On the positive side, we see that fewer of those infected by COVID-19 are dying or becoming seriously ill. This is probably because vulnerable groups are behaving more cautiously, and health services are now better at treating the disease. There has also been some encouraging news regarding a possible vaccine.

Positive company results

At the beginning of August, around half of the world's companies had reported their second-quarter figures. So far, 84 per cent of US companies have beaten their earnings-per-share (EPS) estimates – the highest percentage seen in this data series, with ten years of available history. The corresponding figure for Europe is 63 per cent. However, it must be said that the expectations were very low. Investors' reactions to positive surprises have also been moderate since many shares have already risen a lot since March. The reports nonetheless provided a lot of support for the share-price upturn in the second quarter.

EU recovery package

EU leaders agreed on a record EUR 750bn coronavirus recovery package in July. This package equals all of 7 per cent of the GDP and will comprise a combination of loans and grants to the hardest-hit countries. To secure financing, member countries have for the first time in history agreed to issue common EU bonds. This is an important milestone in EU cooperation.

The road ahead …

The big question going forward is whether the spread of COVID-19 can be kept under control while the various economies try to return to normal. The stock markets will no doubt need some breathing spaces along the way. However, these do not have to be particularly long, since there are few, and poor, alternatives to shares.

"Never, never, never give up"
Winston Churchill