• Global stock markets went up during the third quarter as economies began to recover from lockdowns.
    • There was positive news on a potential COVID-19 vaccine and this helped to drive stock markets.
    • Later in the quarter, stock markets became more volatile as shares in technology companies fell and infection rates in the UK and Europe spiked.
    • The pandemic is still far from over and, as a result, the economic recovery continues to be uncertain.

    During the past three months, many of the countries around the world that were hit first by the pandemic continued to reopen their economies as COVID-19 infection rates fell to low levels. In the summer, global stock markets delivered good performance on rising business activity and promising news on a possible vaccine. However, investor sentiment changed in early September as technology shares fell, infection rates surged in the UK and Europe, and economic activity began to deteriorate as worries of a second wave increased.

    Economic update

    Once again, the COVID-19 pandemic was the biggest issue affecting stock markets and the economy. Central banks and governments around the world remained focused on providing financial and monetary support during what has proved to be one of the biggest economic downturns on record.

    Here in the UK, there was fairly positive economic news over the summer months despite it being confirmed the country fell into the deepest recession on record during the first six months of the year. The Office for National Statistics reported that retail sales had risen above pre-pandemic levels in July, exceeding sales numbers seen in February. Meanwhile, the manufacturing and services sectors began to rebound over the summer, although activity grew slightly slower in September as COVID-19 cases spiked.

    In Europe, government leaders came to a historic agreement in July on a €750 billion package designed to help member countries repair their economies. Similar to the UK, Europe also saw a spike in COVID-19 cases in September after a decline in the summer, prompting concerns of a surge in the winter months. Over the quarter, European countries saw improving economic activity, with a strong manufacturing sector, although a rise in infections in September proved to be bad news for the services sector.

    The US was one of the quickest to reopen its economy throughout the spring and summer, and this was good for the economy. This also resulted in a sharp rise in COVID-19 cases during a time when infection rates were falling in other developed economies. Over the past few months, political deadlock in Washington and the US presidential race dominated headlines. The uncertainty of the presidential election, as well as the inability of the Democrats and Republicans to agree on a new financial support package for business and people affected by the pandemic, remained front of mind for investors.

    Asian economies, which have been fairly successful at containing the outbreak, continued to see a rebound in economic activity, led by a strong manufacturing sector in China. Tensions between China and many of its trading partners flared up early in the quarter, with President Trump moving to ban social media app TikTok unless its owner agreed to sell it to a US company.

    Central banks held interest rates at low levels over the quarter. The Bank of England kept rates at 0.10% and the US Federal Reserve held its benchmark rate at 0.0-0.25%.

    Market commentary

    Despite a downbeat September, global stock markets delivered good returns over the past three months. A notable exception was the UK stock market, which fell over the quarter and underperformed most other markets.

    In July and August, stock markets moved higher amid hopes for a vaccine breakthrough, improving economic data, and continued support from central banks and governments. Vaccine trials continued to progress, with the Oxford trial starting up again after a short pause. In Asia, where countries like China have been the most successful at containing the virus, stock markets performed well.

    After a strong run, shares in US technology companies dropped sharply in September because investors came to believe they were overvalued.

Opinions & Insights

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