The recent stock market rally started to run out of steam this week as fears over the scale of the coming coronavirus-driven global recession began to deepen. Markets all over the world ended Thursday’s trading well into negative territory for the week thanks to fresh concern about a second wave of infections and questions over whether governments and central banks will be able to continue to support economies during a protracted recovery period.
In the United States, disagreements among policymakers over whether lockdown restrictions are being lifted too soon, before the pandemic is under control, spooked investors and raised the prospect of a second round of economically harmful restrictions later in the year.
The Dow Jones Industrial Average ended Thursday’s session almost 3% lower for the week, with the S&P 500 down 2.6%. Wall Street was dragged lower by comments on Wednesday from Fed chair Jerome Powell, who said that the US faced a “prolonged” period of weak growth1 . Meanwhile, the ongoing spat between Washington and Beijing over China’s responsibility for the crisis – and its transparency after the first outbreak was identified – has done little to brighten investors’ mood.
It is worth pointing out that while the Dow and the S&P 500 remain well below the levels at which they started the year, the Nasdaq index of mainly technology stocks is at roughly the same level as it ended 2019. This highlights how uneven the impact of the pandemic has been across the economy, with the likes of Netflix and Amazon surging in value while airlines, travel firms and energy companies, to name just a few, continue to decline.
In the UK, the news that the government was to start making some efforts to lift lockdown restrictions on businesses in England was tentatively welcomed, but did little to lift markets: by close of trading on Thursday, the FTSE 100 had dropped by 3.3% for the week.
Prime minister Boris Johnson’s announcement that Britain is to introduce a 14-day quarantine period for international arrivals was yet another blow to the country’s airlines: the consensus now is that it will take several years for the sector to recover.
On Wednesday, better-than-expected UK economic figures for the first three months of the year offered some respite, but given the lockdown was not enforced in Britain until late March – at the very end of the quarter – the data was not viewed as serious grounds for optimism.
In Frankfurt, the Dax had lost more than 5% between Monday and the close on Thursday: earlier in the week, share prices were hit by news that, in Germany, the reproduction rate for Covid-19, known as the R rate, had risen back above 1 – which means that each person infected by the virus will on average pass it on to at least one other individual.
Meanwhile, the CAC-40 in Paris had lost 6.1% during the same time frame, largely as a result of increased pessimism about the speed of the global economic recovery. Reported rises this week in the number of new infections in countries such as Germany, China and Singapore have only served to highlight the fact that the crisis is a long way indeed from being over.
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 14/5/2020.