Archinomics – market update

As part of our regular podcasts to keep you updated about investment markets, we are sharing the latest news from the investment team at Architas which we hope you will find very useful…

In brief…

US stock markets (equities) were up over 12% with energy and financial sectors in particular performing strongly, driven by a slowdown in the reported number of Covid-19 cases in the US.

The US Federal Reserve (Fed) outlined they would start buying exchange-traded funds that have underlying investments in riskier high yield bonds. This released pressure on investment grade and high yield areas of the corporate bonds market.

OPEC and Russia agreed to cut production of oil by 9.7 million barrels per day, which is 10% of global supply. Despite the historic deal, oil prices dropped as the realisation of plummeting global demand sank in.

Our view…

How did US equities perform last week? US equities were up over 12% (S&P 500 index), with energy and financial sectors in particular performing strongly, driven by a slowdown in the reported number of Covid-19 cases in the US. Also, the Fed offered $2.3 trillion in new loans in support of small businesses.

How did high yield bonds react this week? The Fed outlined they would start buying exchange-traded funds that have underlying investments in riskier high yield bonds. As part of that stimulus package, the Fed announced that they could also purchase recent ‘fallen angels’ – companies that have lost the coveted investment grade status. This released pressure on the corporate bonds sector including higher risk and lower risk areas of the market the (high yield and investment grade bonds).

What happened with oil last week? There was an agreement between OPEC and other large oil producing nations to make the most significant cuts to oil production in history. Proposed cuts of 9.7 million barrels per day
(or 10 % of global supply) are twice the size of those that occurred during the global financial crisis. Surprisingly oil prices were down despite this agreement, partly reflecting the fact that the previous week saw a record rise with the oil price up almost 40%. The reality is that despite this agreement, it won’t offset the fall in demand, which is expected to drop by 30% on last year.

How did gold react over the week? Gold had a very strong week. Last week it was up 6.5% and passed $1,700 a significant price level in the market. And that comes despite the equity market also having a very strong week. This is unusual for an asset often perceived to be a ‘safe haven’ to move in the same direction as equity markets in a crisis.

Looking at the week ahead what’s coming up? The key focus this week is going to be US earnings. Companies are going to start reporting on earnings for Q1 and they will also have been asked to report on how they think their business could be affected for the rest of the year. This forward-looking data will be crucial.

What is next for investors?

Stock markets will likely remain turbulent but, for those with a long-term view, the benefits of having a diversified balanced portfolio might help to spread risk.

It is going to be difficult to predict what will happen in the short term, but we believe that investors should expect volatility to remain elevated over the coming months.

As such, the basic principle of diversification across asset classes, currencies, regions and investment managers is as important as ever.

Listen to the latest podcast HERE.