Weekly Market Insight

Latest Economic & Market Update 14th August 2020

14th August 2020

Good afternoon, it is August 14th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Graph of the Week: Global Market Capitalisation Climbs Above Global GDP.
  • New Unemployment Benefit Claims in the US falls below 1 million.
  • Trump threatens to deprive funding to post offices regarding election ballots.

Graph of the Week: Global Market Capitalisation Above Global GDP

The ratio of market cap to GDP have been used historically to measure if stock markets are overvalued or undervalued. If the ratio is below 1, it suggests that stocks are undervalued and is a potential buying opportunity. A value of above 1 signals that stocks are overvalued and that there is a bubble. The global market capitalisation has now surpassed global GDP (both measured in USD) and stands at a ratio of 1.013. Current global market capitalization stands at $88.9 trillion, gross GDP at the end of 2019 was $87.75 trillion and since then many countries have fallen into a recession. Although the stock market is not the economy as market capitalisation is dominated by a handful of major companies, historically this indicator has preceded a correction in the valuation of stocks. When the ratio climbed above one, it was followed by sharp declines most noticeably in 2001, 2008 and 2018. Although the ratio could continue to climb for now, it will raise concern among many investors who could start taking a risk off approach. Investors are looking for yield, and with increased risk the more stocks climb, without accompanying fundamental data to support the valuations, they could start to look elsewhere for returns to reduce risk. US Treasuries are not providing a yield either, as the real rate (interest rate minus inflation rate) has continued to decline in recent weeks indicating that investors will be losing money if investing in treasuries.

At a glance:

  • For the first time since the crisis began in March, the number of new applications for unemployment benefits has fallen below one million. A figure of 963,000 was reported this week in comparison to the 1.2 million reported last week.
  • As the US presidential election could take place over mail balloting due to the coronavirus, President Trump has disagreed with the idea since it was first suggested and is now threatening to deprive the post office of funding to facilitate the large increase in mail.

Best & Worst Performers of Large Cap US Stocks on Thursday
Click the image to enlarge

Global Market Update
(as at close of markets 13/08/2020)