The return on LD Discretionary, which is the largest investment fund within The Cost-of-Living Allowance Fund, stood at -4.2% year-to-date on 1 July. This means that we have recouped a large proportion of the losses incurred during the significant fluctuations in March as a result of Covid-19. Over 36 months, LD Discretionary has posted a return of 4.1%. The LD Danske Aktier portfolio has delivered an exceptionally strong return of 6.5% year-to-date.
Rising share prices
Shares rose sharply in May and early June in response to the gradual reopening of economies. Global shares are now trading at a level of just -6.5% year-to-date. The US Nasdaq index, which includes major technology stocks such as Facebook, Amazon and Apple, has risen by 11.5% since the start of the year, whilst the leading Danish share index, the C25, is up by over 8% year-to-date.
In the first half of 2020, interest rate markets have generally fallen. US interest rates, in particular, are at a historic low, reflecting the enormous uncertainty that still prevails in the stock markets. Sentiment in the financial markets is largely influenced by 1) developments in the spread of Covid-19, 2) the reopening of societies worldwide, and 3) stimulus and support packages from both fiscal and monetary policy makers.
Attempt to reopen
In many European countries, various stages of reopening are being trialled, with, for example, restaurants, shops and borders returning to normal operating hours. In Denmark, conditions have recently become more normal, whilst everyday life has only just begun to return to normal in Southern Europe. New local outbreaks of infection across Europe are causing concern if they grow significantly. It is encouraging that leading indicators for the eurozone have started to return to better levels than expected, and that private consumption has also picked up.
In the US, however, the mood is different. The spread of Covid-19 is still on the rise in many states. The economic lockdowns implemented in Europe have been difficult to roll out across all US states, and there is a great deal of impatience to return to business and economic activity. The US reports the number of new jobless claims on a weekly basis. The figure remains alarmingly high, and US economic growth is expected to fall by 8% in 2020. Added to this is the fact that the country is more politically divided than it has been for many years. It is set to be an exciting and unpredictable presidential election in November, with Donald Trump’s chances of re-election appearing to have been weakened by the Covid-19 situation.
One thing, however, seems certain. Governments and central banks in both Europe and the US are willing to do almost anything to support their economies through relief packages for both businesses and employees, as well as expansionary monetary policy. The massive relief packages in the US and Europe, amounting to several trillion dollars, have propped up many businesses, just as the purchase of both government and corporate bonds has underpinned developments in the financial markets.
Ongoing concern
Despite the fact that the markets have now returned to positive or near-positive levels, uncertainty and nervousness continue to prevail amongst investors. In particular, concerns about a second wave of the pandemic, which could force society to shut down again, as well as a more permanent impact on the economies, are shaping the outlook.
