Europe is grappling with wave two of the Covid-19 virus. But in the US, the numbers show no real sign of turning up – yet. President Trump’s strong showing in the polls shows Americans want to move on from Covid-19. The president’s stance, emphasising ‘economic normality’, is winning plaudits. A growing body of scientific research highlights the dangers of over-reacting to Covid-19.
Investors are clearly worried about climate change: the energy sector plunged last week. Brent spot fell 0.9% last week, but the S&P 500 energy index shed 8.6%. Pledging to go green is one thing. Managing the transition is quite another for the oil majors.
The renewed decline in energy stocks was enough to pull the S&P 500 down 0.6% for the week, despite an impressive turnaround in the IT sector and other FAANG stocks. The resilience of IT and other tech-related stocks is testimony to the powerful structural changes rippling through the economy. Many of these ‘adjustments’ have accelerated due to Covid-19.
However, in their wake, they will leave a trail of rising defaults. They have rippled through the energy and retail sectors already. Others may yet follow. There may well be losers within materials and industrials (e.g. legacy automakers) that do not transition to a ‘green economy’ quickly enough.
Summary
• Divergence between high yield and equity?
• Strong housing, rising homeowner equity
• Construction bottlenecks a concern
