Sovereign Wealth Partners and InvestSense Pty Ltd
Just about everything traded within a range in June. Equities started the month with a 5% rise only to give it all back by the middle of the month and most markets finished the month up slightly. The initial lift in spirits came from a US jobs report that was wildly above expectations – 2.5m jobs were added rather than the consensus expectation of a 7-8m further loss. With hindsight this is perhaps easier to rationalise as much of the US was already re-opening but most of all it underscores the inherent uncertainty presented by the COVID situation and the lack of historical analogues that analysts can draw upon.
This in turn heralded a rise in expected interest rates and the principal benefactor previously shunned, value stocks, were up by almost 10% in a week. The first week in June was also the first time the financial world witnessed at close quarters the frenzied speculation that has been brewing throughout the COVID crisis by day-traders with time on their hands and government stimulus cheques in their back pockets. At the extreme, this saw bankrupt stocks like Hertz rise by 500% in the first week of June only to collapse again the next week but it also exemplifies the very real Fear of Missing Out (FOMO) experienced by even institutional investors and the impact of very cheap money and corporate bail-outs. Further up the chain, it is a clear manifestation of the unprecedented liquidity that central banks are pumping into markets – the Fed has now come off the fence and conceded that this now represents bonafide printing of money.
Bonds conversely lost value early in the month but clawed their way back into positive territory as the worsening COVID situation in the US dampened animal spirits again. Once again US tech stocks appeared to be the main beneficiary of the lower for longer interest rate theme reasserting itself. In this topsy-turvy, post COVID world such highly rated growth stocks are increasingly associated with a ‘defensive rotation’ and finished the month once more ahead of value stocks.
These are clearly powerful and unpredictable currents that are difficult to swim against and the mantra ‘Don’t Fight the Fed’ rings true for most investors for the foreseeable future. For our part, while we are certainly not picking a fight with Jerome Powell we continue to play a quiet game, looking for reasonable value and continue to be defensively positioned in substance as well as in form.