Market snapshot: Covid, the Fed and US tech

Our head of markets issues an update on the slew of events influencing market direction today. 

Markets have generally stemmed the declines of recent trading sessions, although any relief could be short-lived given overarching concerns which have not gone away.

The potential for Covid-19 to wreak further economic damage was brought into sharp focus as the UK announced further restrictive measures. In the US, deteriorating relations with China and political distractions add to an economy which is still being hampered by the effects of the virus.

Indeed, comments from the Federal Reserve pointed to the strength of the economic recovery seen so far, but also noted – again - that further fiscal stimulus would be required to maintain this momentum. While there were strong economic numbers announced yesterday in the form of existing home sales, unemployment remains a thorny issue, particularly given the political backdrop as the Presidential election campaign gathers pace. 

Big tech also saw something of a relief rally, with Amazon.com (NASDAQ:AMZN) in particular seeing the benefit of a broker upgrade, taking its share price to a level of up 69% in the year to date. The Nasdaq is now ahead by 22% in the year to date, with investors contemplating whether fresh lockdowns being announced around the globe will lead to a repeat of the previous demand which the sector previously enjoyed at the height of the pandemic.

In the UK, attempts to foil a second wave of the pandemic piles additional pressure on several already beleaguered sectors which had shown some signs of a tentative recovery. Hospitality, leisure, tourism and the banks will all come under the spotlight once more as the moves by the UK government threaten to choke recovery prospects.

The additional concerns of a spike in unemployment after the end of the furlough scheme, as well as increasingly fraught discussions between the UK and the EU, beg the question of whether more stimulus is required, or even possible. The previously coordinated package of fiscal and monetary stimulus from the government and the Bank of England was well-received and led to some economic success, and it will become apparent in the coming months whether there is appetite, or indeed the wherewithal, to provide further injections.

In the meantime, the FTSE 100 index remains down 22% in the year to date, despite some sustained recent weakness in sterling given the UK’s dampened economic outlook. Investors continue to search for value amid a backdrop of widespread uncertainty, but for the time being the UK’s premier index remains off the radar.