Equity markets recovered further during May, although the COVID-19 pandemic continued to dominate headlines and market sentiment.  Market movements compared to those in April were comparatively moderate and volatility declined, the focus is now on how successful the easing of countries lockdown measures will be and the consequent effect on their economies.

In the US, most states where lockdown measures were imposed took steps to begin reopening in spite of daily infection figures only having fallen to around two thirds of the peak infection rate from mid-April in the worst affected areas.  In spite of the impact of the pandemic, on the contrary US equities continued to make headway and the S&P 500 is now around just 10% below the February peak.  Lockdown measures have also been eased across Europe, including heavily impacted countries such as Italy and Spain. The infection rate across major European economies having declined notably, although the rate in the UK remains relatively high compared to our European counterparts.  There have been some positives for the public health outlook after signs of success in human trials of a vaccine against COVID-19, although uncertainty remains as to how the pandemic will evolve.

In spite of the partial recovery across US equities, US economic data remains weak. Unemployment in April reached the highest level in post-war history and this is expected to increase in June.  Business activity also deteriorated further demonstrated by decline in the manufacturing and service components of the Purchasing Managers Index (PMI) and as the US economy remains far from reaching capacity.  The expectation is that second quarter GDP will show a much steeper drop of historic proportions, although growth is expected to recommence in the third and fourth quarters significantly from such a depressed base.  Corporate results for the first quarter of 2020 confirmed a sharp reduction in earnings. In line with expectations, defensive sectors such as consumer staples, utilities and health care were the most resilient, along with the technology sector as high demand for remote interactions provided support.  Financials, energy and consumer discretionary were the most negatively impacted, the latter due to reduced household spending. There were no meaningful adjustments to US monetary policy following the US Federal Reserve meeting in May.

UK equities were particularly affected by the impact of the economic shutdown, partly due to the significant representation of energy companies and financials.  The FTSE All Share did however recover part of the losses in May as the UK government announced further plans to continue to gradually reopen the economy against a backdrop of improving infection statistics.  First quarter GDP fell by 2%, which is the worst reading since 2008 and in spite of government support in the form of the Chancellor’s job retention scheme the number of people claiming benefits, largely due to unemployment, rose.  A much greater decline is expected for the second quarter which includes the main period of lockdown.

In Europe, the daily infection rate is now roughly 90% lower than the peak at the beginning of April and attention has now shifted to an EU wide recovery plan funded by EU budgetary resources.  The focus continues to be on supporting those countries that are most in need.  The proposal is that EUR 500 billion of spending be made available with a significant proportion made as grants, and to make EUR 250 billion of loans available to any EU country.  This should enable countries with already high levels of debt to access funding without having to issue more debt of their own.

Elsewhere parts of Asia have continued to gradually recover as their economies partially reopened, particularly South Korea and China where contact tracing has played an important role in their respective strategies.  There has been a decline in the number of reported cases in Japan but a large increase in cases in India and Brazil has caused concern and limited recovery from equity markets in these regions.

There are grounds for cautious optimism as infection rates have declined in many countries.  The focus is now upon how effective countries are in implementing the easing of restrictions and preventing a second wave of infection.  Uncertainty remains as to when economies can fully reopen and how sustainable this will be.  Inevitably, social distancing measures remaining necessary for a longer period will mean that there is a greater probability of lasting effects to the global economy.  There has been an unprecedented amount of stimulus from governments and central banks which has supported markets, although among the many challenges will be how effectively companies can avoid liquidity issues and to what extent workers successfully return to employment from schemes such as the UK’s job retention measures.

Market Performance


2020 Year to Date Total Returns
FTSE All-Share -17.58%
FTSE World ex-UK (GBP) -1.58%
FTSE Actuaries UK Conventional Gilt All Stocks +8.95%
FTSE Actuaries UK Index-Linked All Stocks +11.94%


Performance to 1 June 2020


Key Rates  
Bank of England Base Rate 0.1%
Inflation (Retail Prices Index)* 1.5%


*May 2020