OCM Commentaries

Market Commentary 22nd July 2020

By July 22, 2020 July 23rd, 2020 No Comments

Combined Stimulus Boosts European Stocks

Over the week, European leaders agreed on an unprecedented €750 billion stimulus package designed to pull their economies out of the worst recession in history in a show of the European Union’s common resolve. The package was first proposed by German Chancellor Merkel and French President Macron in May, however encountered resistance from some member states, raising concerns over whether the bloc would be able to reach a consensus and provide much-needed aid to the ailing Eurozone economy. While governments all agreed that economic contractions of as much as 10% in some countries called for extraordinary measures, they bickered for hours over the final amount of grants and loans to be given to struggling member states, however reached an agreement in the early hours of Tuesday on a package of €390 billion in grants and €360 billion in loans which will be used to cement the foundations of a recovery in the coming years.

For more information on the European Stimulus Package and what this means for European assets, please see the attached Market Update document.

Q2 Earnings Season Gains Momentum

Following a challenging second quarter as lockdowns brought activity to a near standstill across the globe, earnings season now is underway in the US, with big tech names reporting earnings over the coming days. Last week, we saw Netflix punished on a softer outlook as investors set a high bar for the stock, bringing about a decline in tech stocks over the week. Non-tech market reopening earnings were given more of a pass over the quarter due to low market expectations. Microsoft, Amazon, facebook, Google are due to report in the coming weeks, therefore we are expecting to see whether investors have priced too much optimism into tech valuations in the near term. Over the week, buyers re-bought tech on the dip, with cash on the sidelines likely to continue to provide support on further fall backs in the sector in the near term.

Against the current economic backdrop, for value stocks to outperform growth stocks, we would need to see an improvement in fundamentals and epidemiology to support expectations for a strong economic recovery. If we get a vaccine, we will see these stocks performing strongly, however for now tech is viewed as a defensive stock, benefitting from the stay at home trend.

Vaccine Update

It was announced this week that a coronavirus vaccine that the University of Oxford is developing with AstraZeneca showed promising results in early human testing, increasing levels of both protective neutralising antibodies and immune T-cells that target the virus, according to the study organisers. The results, published on Monday in The Lancet medical journal, are a key milestone for one of the fastest-moving vaccine projects globally. On the same day, Pfiser and BioNtech also announced early positive data from their Covid-19 trial in Germany, which builds upon promising results from their program earlier this month. Recent progress in clinical trials has boosted optimism that an effective vaccine to the coronavirus may be found before the end of the year, boosting risk on sentiment over the week.

Key Event We Are Watching This Week:

  • Thursday: US jobless claims
  • Friday: UK, US & EU PMI for July

For anyone who wants further data to substantiate the position please review the attached Global Economic Update document and the Economic Dataset below.

Model Portfolios & Indices

Global stock markets continued to show high levels of volatility over the week as the US battles with increasing virus cases. Over the week, major indices advanced on optimism over increasing economic activity as economies re-open from their coronavirus induced lockdowns alongside continued government and central bank stimulus, offsetting virus fears. The UK remained relatively flat over the week as Europe rallied on a combined stimulus package. The portfolios remained robust in the face of market volatility, benefitting from a high level of diversification in asset classes and geographies.

Last week, we made changes to the portfolios to add more exposure to China and global value stocks, where we see opportunity for outperformance in the medium term. This is part of our continued analysis of markets and potential opportunities as the global economy recovers. We are optimistic on the medium-term outlook from here, accepting further volatility but confident in our positioning, with well diversified portfolios which have been designed to weather these market conditions. Year to date, we have now recovered from the March coronavirus decline, and we are in a strong position moving forward.



Important Information


Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value.  You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio.  The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations.  Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges.  Unless stated, income is reinvested into the portfolio.  The information contained in in this document is for information purposes only.  It does not constitute advice or a recommendation or an offer or solicitation for investment.


This Day in History


On this day in 1977, after falling from favour during the Chinese Cultural Revolution (1966-76), Deng Xiaoping returned to power after the Chinese Communist Party reinstated all his former high posts, including that of vice- premier. He was the most powerful figure in the People’s Republic of China from the late 1970s until his death in 1997.


Have a great week,


Jason & Gina