The COVID-19 pandemic led to a global recession unfolding within the space of two months, with share markets collapsing and then staging a strong recovery. Markets have performed strongly even as we remain in the midst of tumultuous recession and a worsening global pandemic.
How is this possible?
COVID-19 recession & Understanding economic data
Two types of data have been used to help understand the collapse and rapid rally of share markets throughout the month of June:
- Business survey data (also known as Purchasing Manager Indices (PMI), that are available for most economies and track expected future production.
- High frequency (daily) data produced by technology applications on smart phones which track day-to-day travel and purchases by the household sector.
What does the business survey (PMI) data tell us?
Substantial shifts in PMI surveys have been linked to changes in expected earnings that companies are predicting. This generally drives up share market returns.
We have seen share markets rally as global PMI surveys lifted firmly through June.
We think this rapid recovery reflects the massive support governments and central banks have provided, stepping in to stimulate economies. Assessing technology platform data High frequency data hasn’t been around for long but given its daily and weekly nature, it is a useful way to track economies since the 2020 lockdown. This also provides a good ‘check’ when looking at the lift in earnings expectations from the PMI data. Transport Looking at transport data, where increased movement indicates that economies are ‘opening up for business’ again, the data has broadly improved in-line with the bounce in PMIs. Apple transport data for driving and public transport has recovered from the mid-March low.
However, across regions the recovery has been uneven with Europe (except for the UK) and Japan showing the strongest recovery. Driving in the US has recovered above January levels. However, in contrast to the EU and Japan, public transport remains well below peak levels.
Consumer Data
When we assess high frequency consumer data in the US, we can see that consumption has recovered from a fall of around 35% post-lockdown (to be down around 7%).
However, in the last week of June, possibly reflecting the recent surge in cases, the improvement in both Apple mobility and consumer data has flattened in July to be down around 9%. The data tells that overall the share market rally has been supported by a solid bounce in key leading indicators since the lockdown collapse.
The US share market has seen technology (growth) stocks lead the recovery. Other markets such as the EU and Japan should now build support. China’s economy appears to continue to recover from the pandemic, supporting markets, and it has now overtaken the recovery in US markets. The Australian share market, still recovering, has lost some momentum with the spike in COVID cases in Victoria.
What may be ahead?
Overall, the rapid and broad-based improvement in both PMIs and high frequency data appears to be flattening out in the month of July. The indicators suggest that markets have captured the initial bounce and are now consolidating. The next catalyst is likely to be the timing and effectiveness of vaccines made broadly available. Initial news seems to be positive, but until there’s some greater clarity from the current vaccine trials, markets could track sideways or possibly weaken if the infection rates in the US continue to advance. In these challenging times it’s wise to seek professional financial advice if you’re feeling concerned about your investment strategy.
A qualified financial adviser can support you to assess your short and longer-term financial goals, which may help to provide peace of mind with regards to any concerns about the current market environment.