Global Equities: Is The Worst Yet to Come?

The news this week:

Following the latest sell-off, global equities have faced their worst week since March. Even the Wall Street tech titans, which have been going strong throughout the coronavirus pandemic, have been negatively impacted by the most recent market volatility.

Furthermore, data from the eurozone illustrated the unpleasant uncertainty of the economy as coronavirus cases continue to rise in Europe. In October, the eurozone experienced its third consecutive month of deflation which has led the price of consumer goods decreasing 0.3 % every year. More alarmingly, the five-month labour market recovery of the eurozone has halted since September, with unemployment numbers rising by 75,000. Likewise, in the UK, the unemployment rate grew to 4.5%; the highest level in over three years.

Despite the Eurozone GDP posting 12.7% growth during the third quarter, the fears of a double-dip recession have successfully stifled any reaction from traders.

As a result, the future appears rather bleak.

Key figures:

This week, the US S&P ended the week 5.6% lower than Monday. Likewise, the Nasdaq Composite was down 5.5% for the week following the announcement of quarterly results from a few the technology sector’s largest companies.

Despite Alphabet, Apple, Amazon and Facebook all beating expectations this week, their shares have decreased around 5-6% this week due to the soaring share prices.

Finally, the MSCI All Country World Index of global equities fell 1.2% which means that it has decreased 5.3% over the five sessions. This is its worst weekly sell-off since worries regarding coronavirus on the economy hit an all-time high in March.

The Future:

The latest negative results can be attributed to caution over coronavirus and the US election. Furthermore, the renewed lockdowns across Europe have also contributed to the increasing market volatility.

It is also worth noting that following Goldman Sachs recommendation to stock up on gold and silver earlier this week as their analysts forecasted gains 30% for commodities in the next 12 months, gold gained 0.6% to $1,878.50 per Troy ounce. This decision was made following the consideration of the US government’s economic stimulus aiming to encourage consumers to keep spending. As a result, there will be higher inflation in the near future which will undoubtedly erode savings. Thus, investments in ‘safe havens’ like gold are appearing much more appealing.

Significantly, though, bond prices have not substantially climbed despite the strong inverse correlation between equity and bonds. This indicates that, as traders are not investing in less riskier investments just yet, there is potential that the equity market may rebound swiftly once the economy is riddled with slightly less uncertainty.

Therefore, once again, we arrive at an inconclusive conclusion. Whilst the market has been undoubtedly impacted by the negative results this week, one should not underestimate the market’s ability to quickly recover from setbacks as seen in April. The uncertainty induced by the renewal of coronavirus lockdowns across Europe, and the volatility following the US Elections have been the key elements thus far. As a result, as of now, it is difficult to determine whether there are any long-term trends in the global equity market.

By Bobby Zhu