Market Insight – 22 July 2020

We're in a global recession, why has the share market rallied?

The COVID-19 pandemic led to a global recession unfolding within the space of two months, with share markets collapsing and then staging a strong recovery. Markets have performed strongly even as we remain in the midst of a deep recession and a worsening global pandemic. How is this possible?

Understanding economic data

We have used two types of data to help us understand the collapse and rapid rally of share markets through June:

  • Business survey data, most often termed Purchasing Manager Indices (PMI), that are available for most economies and track expected future production.
  • High frequency (daily) data that is produced by technology applications on smart phones that track day-to-day travel and purchases by the household sector.

What does the business survey (PMI) data tell us?

Substantial shifts in PMI surveys have been linked to changes in the expected earnings companies are predicting and so this generally drives up share market returns. We have seen share markets rally as global PMI surveys lifted solidly through June. We think this rapid recovery reflects the massive support governments and central banks provided, stepping in to prop up economies.

Assessing technology platform data

High frequency data hasn’t been around for long but given its daily and weekly nature it is a useful way to track economies since the 2020 lockdown. It also provides a good ‘sense check’ when looking at the lift in earnings expectations from the PMI data.


Looking at transport data, where increased movement generally indicates that economies are ‘opening up for business’ again, the data has broadly improved in line with the bounce in PMIs. Apple transport data for driving and public transport has recovered from the mid-March low. However, across regions the recovery has been uneven with Europe (except for the UK) and Japan displaying the strongest recovery. Driving in the US has recovered back to and above January levels, although, in contrast to the EU and Japan, public transport remains well below peak levels.

Consumer data

When we assess high frequency consumer data in the US, we can see that consumption has recovered from a plunge of around 35% post-lockdown to be down around 7%. However, in the last week of June, possibly reflecting the recent surge in cases, the improvement in both Apple mobility and consumer data has flattened in July to be down around 9%.

The data tells the story

Overall the share market rally has been supported by a solid bounce in key leading indicators since the lockdown collapse. The US share market has seen technology (growth) stocks lead the recovery. Other markets like the EU and Japan should now build support. China’s economy appears to continue to recover from the pandemic, supporting markets, and it has now overtaken the recovery in US markets. The Australian share market, while recovering, has lost some momentum with the spike in Victorian COVID-19 cases.

What may be ahead?

Overall, the rapid and broad-based improvement in both PMIs and high frequency data appears to be flattening out in July. The indicators suggest that markets have captured the initial bounce and are now consolidating.

The next catalyst is likely to be the timing and effectiveness of broadly available vaccines. Initial news appears positive, but until there’s some greater clarity from the current vaccine trials, markets could track sideways or possibly weaken if the infection rates in the US continue to climb sharply.

In these challenging times it’s wise to seek professional financial advice if you’re feeling worried about your investment strategy. An adviser can support you to assess your short and longer-term financial goals, which may help to allay any concerns about the current market environment.

Dan Farmer

Chief Investment Officer

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