Mega Techs Under the Cosh
After an unexciting July in terms of investment returns, August has made a strong start, with US job markets figures delivering a much-appreciated positive surprise on Friday, while corporate earnings reports continue to support elevated stock market levels across the Western world. The reporting period for the first quarter was very strong and this one has progressed in the same vein, although the pace of analyst upward revisions of earnings estimates has been tailing off, in comparison to last quarter’s stellar upgrade path. Still, it has been nearly as good so far, with UK upgrades strongest this time (according to Factset’s aggregates). We look at the UK in detail in a separate article, after an interesting Bank of England (BoE) Monetary Policy Committee meeting last week.
July Review: A Mixed Month With a Positive Outlook
Most economies in the developed world have by now experienced a strong post-COVID rebound. Naturally, some of the elevated economic readings are set to cool as economies converge to a more natural mid-cycle growth path, and come to grips with a fourth wave of infections while under the relative protection of vaccinations. Governmental and central bank monetary support will be less forthcoming, even if the virus remains a feature of day-to-day life, especially on a global scale. Central banks, most notably the US Federal Reserve (Fed), but also the BoE have started thinking about withdrawing policy action but until that time comes, support is likely to remain ample. Markets have had to digest this environment in flux, a process that typically leads to volatility. Along those lines, bond yields have retraced much of their rapid advance earlier in the year.
UK: Between Policy Support Withdrawal and Bounce-Back Upsurge
Three weeks since the long-awaited “Freedom Day”, Britons are enjoying a pleasant, if somewhat overcast and dull, summer. The surprise drop-off in virus cases seems to have levelled off, but while the fact that numbers are not increasing is an encouraging sign, it remains to be seen whether this will be sustained. With the UK having vaccinated nearly all of its adult population, the pressures on public health are a fraction of what had been experienced during the first three waves. If this continues to hold, there is little to suggest
a worsening in the months ahead. That is good news for the UK economy which, despite widespread complaints about the ‘pingdemic’, is recovering nicely.