Weekly Market Insight

Latest Economic & Market Update 31st July 2020

31st July 2020

Good afternoon, it is July 31st 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Stocks fall and investors move to safe havens.
  • US Q2 GDP contraction largest on record.
  • The big four tech companies report blow out earnings. 

US stocks sank on Thursday after economic data showed the sharpest contraction on record and the number of people filing for unemployment benefits increased. Some of the losses were paired after big tech companies earnings reports showed that they beat earnings expectations. The Dow Jones closed -0.85% lower, the S&P500 closed -0.38% lower but due to the better than expected earnings in big tech companies the Nasdaq rose 0.43%. Investors moved into safe havens with the 10 Year US Treasury yield falling to 0.54% and Germanys 10 year yield fell to -0.54%. European stocks fell due to disappointing corporate earnings. The Stoxx Europe 600 closed -2.16% lower.  

US GDP contracted by 9.5% (annualised rate of -32.9%) in Q2 from Q1. It is the steepest contraction on records that date back to 1947. Personal spending accounts for approximately two-thirds of US GDP and fell at an annualised rate of -34.6%. The declines show the devastating impact that lockdown has had on the US economy. The full effect of the lockdown was not fully seen in Q1 figures (-5% annualised) as the lockdown only came into place towards the end of March. However lockdown was in full swing when Q2 began and remained that way until the gradual phased reopening of the economy began in May. Despite an initial improvement of economic data such as employment, spending and production levels, an increase of coronavirus threatens to slow the pace of the US economic recovery. The number of people filing for unemployment benefits for the first time increased for the second week in a row as 1.43mn people applied.

Following blow out earnings reports from the top four tech companies, Alphabet, Amazon, Apple and Facebook, the combined market value of the four companies rose nearly $230 billion on a day where US stocks sank in response to dire GDP data. The companies reported strong growth, defying the global downturn where many of their customers and business partners are struggling financially. Despite being grilled by Congress in the day prior where the possibility of future regulation on the companies might have been a cause for concern for investors, it was quickly overlooked as investors piled into the big tech companies. Tech companies have outperformed other US stocks since lows in March as investors focus on companies that would benefit from the new norm of working from home.

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

Global Market Update
(as at close of markets 30/07/2020)