Monthly Commentary – April 2020

As investors took heart from sizeable new stimulus measures and signs that lockdowns may soon ease, the world’s battered stockmarkets rebounded in April. The S&P 500 recorded its best monthly performance since 1987 – in defiance of economic data and corporate earnings reports that suggested worsening conditions.

Despite the mounting death toll, there were signs that the Covid-19 pandemic was abating. Trends in some hotspots suggested that the outbreak’s peak might have passed, and this encouraged political leaders to start planning an easing of lockdown measures that have decimated economic activity. Some countries took tentative steps to reopen schools and businesses. There was also good news from one of our investments, Gilead Sciences, which announced that it had successfully tested its Covid-19 drug remdesivir. Investors were cheered by these developments, but any hopes of a swift return to normality may be misplaced.

The havoc wrought by the pandemic was evident in economic data. In the US, jobless claims continued to mount – more than 30 million workers have now lost their jobs since restrictions began. In the first quarter of the year, US GDP shrank at an annualised rate of 4.8%, with a deeper recession inevitable in the second quarter. The drop in demand was reflected in oil prices, which dipped dramatically mid-month, before recovering later. The glut meant that oil future prices briefly turned negative as a shortage of storage space distorted the market.

In an attempt to soften the economic blow from lockdowns, governments and central banks continued to ramp up stimulus measures. The US Federal Reserve unveiled plans to provide $2.3 trillion in emergency support and committed to keeping interest rates near zero. Meanwhile, US politicians approved another $484 billion in government aid.

In the equity markets, the best returns came from North America. Also strong was Asia Pacific (ex Japan) as China ended its lockdown of Wuhan – the outbreak’s original epicentre. Although all regions made solid gains, April’s main laggard was the UK, where Prime Minister Boris Johnson required intensive care in his battle with Covid-19. Japan also lagged its global peers as it entered a nationwide state of emergency.

As hopes built for a recovery, several of the most economically sensitive sectors led the charge. Energy performed best, retracing some of its lost ground as the oil price reflected hope for improved demand. Consumer discretionary and materials stocks were similarly bolstered. Among the laggards were the more defensive sectors, with utilities and consumer staples recording smaller gains.

Two recent additions to our gold investments, Gold Fields and AngloGold Ashanti, provided some of our best returns in April. Both stocks rose by around 50%. Regular readers will be well aware of our long-held love for gold. We believe that the unrestrained stimulus used to offset the economic damage of lockdown, will debase currencies and boost gold’s value. Both of these gold miners have ambition to grow their earnings through improved operations while benefiting from the favourable gold price.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.