Last week was a replay of the same rotation move: out of growth stocks – chiefly tech – and into industrial cyclicals and energy stocks. The performance gap between these sectors has never been so wide but ought to narrow as the global economy recovers, however gradually that may be. Monday was a nightmare day for core European indices, which plunged by 4% as investors took fright at the range of containment measures that may be introduced to stem the spread of the virus following surges in new cases in the UK, France and Spain.

The banking sector was also hit by heavy selling following publication of the ‘FinCen Files’, as part of a new investigation by the International Consortium of Investigative Journalists bringing to light several episodes of regulatory breaches, including the laundering of profits from many kinds of criminal enterprises through major international banks over a period spanning several years. Market volatility was further amplified last week by the death of Ruth Bader Ginsburg, the oldest serving member of the US Supreme Court, which has unleashed an intense political battle for appointing her successor. She was known as a liberal figure. Donald Trump, who is fast-tracking the process, has already lined up a list of conservative judges. The Democrats have asked the Republican-majority Senate to wait until after the presidential election to appoint a successor.

As expected, the Fed has kept monetary policy ultra-loose. Its latest series of economic projections are on the whole less downbeat than its June forecasts were. For 2020, it sees GDP contracting by 3.7% and unemployment ending the year at a rate of 7.6%. Even so, the outlook remains highly uncertain in the eyes of Jerome Powell, who has again called for more fiscal support.

The vast majority of the Fed’s rate setters (13 out of the 17) project the key benchmark rate at 0.125% at the end of 2023, meaning a rock-bottom level for a long time to come. In any case, the Fed is not planning to make a move until the US economy is back at full employment and inflation is hovering around 2%. Globally, central banks’ actions remain supportive of risk assets, for which there is little alternative.

The number of IPOs – of which there were 14 in the US last week – is booming. So are M&A bids. US firm Snowflake, which operates cloud storage, has seen blisteringly hot demand, having been bid up to twice its IPO price of USD 120. At that level, the stock was already richly valued, at 150x revenues.
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