When America sneezes, the world catches a cold is a well-worn saying amongst investors. The rationale being that as the largest economy, the rest of the world tends to be deeply affected by what happens in America - good or bad. And right now, it’s pretty bad.
At the end of July, economic data showed an annualised fall in US GDP of 33% - the worst ever recorded. The US has also remained in the eye of the storm in terms of COVID-19 infection. But despite this, the US stock market rallied (again) during the month, driven primarily by performance of technology (Source FE Analytics). US bond markets joined the fun with high-yield bonds recording strongest performance since 2011. Currency is perhaps a better barometer of economic sentiment in the real world and the dollar fell heavily against most currencies during the period (Source FE Analytics).
Emerging markets experienced a similar pattern. Despite rising COVID-19 infection, the region was the best performing equity market (Source FE Analytics). A weaker dollar and global Central bank support are key reasons for this optimistic investor sentiment.
At the other end of the spectrum, gold was another stellar performer and the best performing asset class overall (Source FE Analytics). Traditionally seen as a safe haven and a protection against inflation, it’s no surprise to see so many investors flock to it amidst concerns about the real-world economy and the unprecedented stimulus which many fear will have a significant impact on inflation and currencies ahead.
Barbell approach, anyone?
The information in this post is not financial advice, it is provided solely to help you make your own investment decisions. If you are unsure about whether an investment is appropriate for you, please seek professional financial advice. You can find more information here.
When you invest you should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return.