Equity markets continued to post solid gains throughout August, with indices in the US making new record highs. The S&P 500 rose above 3400 for the first time, eclipsing its mid-February high, while tech stocks continued to march on, with the NASDAQ 100 also making a new all-time high. Down under, New Zealand equities slightly underperformed most global indices as the reemergence of COVID-19 dampened investor optimism.
In politics, August saw the Democrats elect Joe Biden as the party’s presidential candidate and Kamala Harris accepted the vice-presidential nomination. This now sets the stage for what will be a vigorous campaign.
Politics and the still-lingering COVID-19 outbreak headline what will again be a busy month. And with this in mind, here’s ANZ Investments’ Month Ahead for September.
The New Zealand COVID-19 situation
After more than 100 days with no community transmission, New Zealand saw the reemergence of COVID-19 in the community, which saw the Government place Auckland – the epicentre of the new cluster – into Alert Level 3, and the rest of the country into Alert Level 2. It was a blow to the local economy, as some parts were slowly returning to some form of normalcy.
While restrictions are scheduled to loosen on 30 August, the Government has warned that further cases are likely, which means a nervous period ahead for the business sector. And given this warning, we expect any further significant outbreaks to weigh heavily on the local economy.
US election campaigning heats up
With a little over two months before the 2020 US election, September will see both Democrats and Republicans ramp up campaigning in what will be one of the more unorthodox elections in recent times, given the ongoing pandemic and economic concerns.
President Donald Trump and the Republicans will continue to reiterate that the Democrats are too progressive, with a particular focus on immigration and taxes. Meanwhile, Democrats are choosing to make the election a referendum on Trump, citing his underwhelming COVID-19 response and the rise of social unrest under his presidency.
As we get closer to the election, we are monitoring polls in traditional swing states which include, Wisconsin, Michigan, Ohio, Pennsylvania and Florida.
As of late August, most national polls have Joe Biden leading by somewhere between 6 and 9 percentage points.
Can the US job recovery continue?
After adding around 9 million jobs in the past three months, the US employment sector has bounced back nicely. However, there is still a lot of work ahead to recover the 20 million or so jobs lost in the early stages of the pandemic.
The employment sector is a key barometer in measuring the recovery of the US economy. With momentum in rehiring, another strong report would increase the probability of a V-shaped recovery – something that would surely buoy optimism.
Given this, we will be eyeing the August employment report to see if momentum has continued. Early forecasts indicate the unemployment rate will remain above 10%, but it must be said, economic data points have been volatile since the pandemic.
New Zealand recession: just how bad
In September, Statistics New Zealand will release growth data for the second quarter, which will likely confirm New Zealand entered its first recession in around 10 years. After the COVID-19 lockdown measures in April brought business activity to a near-halt, some are forecasting for quarterly GDP to decline by as much as 20%.
The report will give us insight into how effective the strict lockdown measures were. On one hand, many businesses were completely closed for some time, but on the other hand, the country got back to Alert Level 1 faster than many had expected.
We are starting to see more value in European equities
Over the past few weeks we have been slowly rotating our overweight equity position from US equities to European equities. As major US indices continue to hit record highs, we are starting to see slightly better value in European markets. Furthermore, as we get close to the US election, we see the chance for greater uncertainty, therefore making Europe a little more attractive.
Despite the ongoing uncertainty, our base case remains a pickup in growth into the end of the year, which will see business activity return to around 80% of pre-COVID levels. Given this, we are cautiously optimistic about the outlook for the global economy.
Disclaimer: This information is issued by ANZ Bank New Zealand Limited (ANZ). The information is current as at 27 August 2020 and is subject to change. The information is general in nature and does not take into account your personal objectives, needs and financial circumstances. You should consider the appropriateness of the information, having regard to your personal objectives, needs and financial circumstances. This information is not to be construed as personal advice, and should not be relied upon as a substitute for professional advice. Although all the information in this document is obtained in good faith from sources believed to be reliable, no representation of warranty, express or implied is made as to its accuracy or completeness. To the extent permitted by law ANZ does not accept any responsibility or liability arising from your use of this information. Past performance is not indicative of future performance. The actual performance any given investor realises will depend on many things, is not guaranteed and may be negative as well as positive.