William John Market Report 22-07-21
William John assesses the international capital markets this week.
William John, bonds, equities, indices, COVID-19, Delta variant, earnings release
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William John Market Report 22-07-21

William John Market Report 22-07-21

Category: Reports

Building on analysis from last week’s report, the path ahead for equity investors is becoming more and more uncertain. Vaccines, long considered the endgame for the COVID-19 business cycle, are not proving as final as once thought. 

At the start of the week (19/07), the European STOXX 600 – an equity index comprised of 600 stocks from 17 different European countries – saw its worst session of the year so far falling 2.3%. The S&P 500 and FTSE 100 followed suit, both falling 1.4% and 2.3% respectively. The shake up on Monday was widely attributed to mounting concerns about the COVID-19 “Delta” variant. 

The Delta variant, the most transmissible variant known in existence, has seen an exponential rise in cases across multiple continents. On 20/07, the Centre for Disease Control and Prevention (CDC) in the U.S. estimated that it accounts for 83% of all new sequenced cases, whilst in the U.K. over 90% of sequenced cases are caused by the Delta variant. Of these rises in cases, hospitalisations and deaths, amongst indirect negative effects such as worker self-isolation, have risen and have caused concerns about economic reopening and the ability of business to bounce back with an isolating workforce. 

However, as the Director of the CDC Dr. Rochelle Walensky pointed out on 16/07 at a White House briefing “this is becoming a pandemic of the unvaccinated”. Inevitably, whilst equity markets may continue to experience wobbles with continuing Delta uncertainty, this is unlikely to persist if vaccination rates (especially amongst young people) remain consistently high – assuming vaccine efficacy is what it says on the tin. 

Irrespective of Monday’s wobble, equity markets have bounced back. As of close on 21/07, the S&P 500 was up 2.35% whilst the STOXX 600 gained 2.18% and the FTSE 100 gained 2.25% since Monday – all effectively wiping out their losses. Given a highly accommodative monetary policy for businesses running in the background and further strong earnings releases by companies including the Coca Cola Company, Verizon, Chipotle, IBM and BlackRock (just to name a few), it appears that the equity capital markets internationally are in a tug of war between strong signs of economic recovery this quarter and mounting uncertainty about how COVID-19 could disrupt these gains. Ultimately, over time, investors blowing variant and pandemic scares out of proportion will fade and these wobbles will be priced efficiently by traders. Traders must learn to live with COVID-19 this summer, that’s for sure. 

Elsewhere, the U.S. bond markets remained stable for 1 year Treasury bonds but saw a slight sell-off for both 10-year and 30-year Treasury bonds as their yields creeped upwards this week:

Source: William John Analytics, U.S. Department of the Treasury

The incremental Treasury sell-off for longer term yields is indicative of steadying investor sentiment surrounding the equity markets but a lack of a sharp movement in yield means investors are holding out for further economic clarity. 

Overall, the same crucial factors that have influenced the capital markets since the outbreak of COVID-19: economic reopening & recovery, monetary policy and COVID-19 itself are likely to constantly influence market direction and trends this summer as investors learn to live in the pandemic business cycle.

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.