A big week for equities. Last week we suggested that the protests over George Floyd’s death and civil disturbance might be a risk to the generally constructive view of equities offered in this commentary. Not a bit of it. Despite a large number of demonstrations that rocked the Trump administration, the S&P 500 went up 4.9% last week.
“The Transition to Greatness has started, ahead of schedule,” President Trump concluded.
The number of daily new infections for Covid-19 remains stubbornly high in the US (22,836, June 6th). For sceptics, last week’s rally is yet another illustration of the disconnect from ‘fundamentals’. When the economic recovery runs into the inevitable roadblocks, share prices will tumble anew.
There is an alternative explanation, one that aligns closer to the US president’s rather over-the-top assessment. The US does have many of the leading technology companies that will help the world adapt and adjust to the pandemic. The Fed also has the option of YCC, to counter rising Treasury yields. The stock market looks well underpinned for now.
Summary
• A jobs ‘surprise’, but lockdown is easing
• Rise in yields needs watching
• But YCC could underpin rally in equities
