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Coronavirus Surges Raise Investor Concerns

All eyes were on market news, as investors grew increasingly worried about economic outlook. Some of the attention grabbing headlines included: continued spikes in COVID-19 across the U.S., the International Monetary Fund (IMF) released a sobering outlook for the rest of 2020 and 2021, and the US Federal Reserve released the results of its bank stress tests. The latest outlook from the IMF shows the Global economy to contract by 4.9% in 2020, almost 2 percentage points below the April forecast.i Looking ahead to 2021, the IMF forecasts global growth to rebound to a 5.4% growth rate, down 0.4 percentage points from the April forecast, showing sluggish growth of global GDP about 6.5% percentage points lower than pre-COVID-19 levels.ii

On Friday, the governor of Texas dialed back the state’s “re-opening,” including the closing of bars and restricting outdoor gatherings,iii and the Federal Reserve released the results of its bank stress tests. Although there seemed to be few surprises, investors were reminded that COVID-19 developments continue to affect bank earnings. According to the Federal Reserve, future payouts would depend on bank earnings and bank earnings may start to look worse as pre-coronavirus quarters are replaced with COVID-19-impaired results.iv The S&P 500 Financials finished the week 5.3% lower. Meanwhile, the S&P/TSX Capped Financial Index fell by 3.5% from the previous week, with an unadjusted close of 253.72v

Retail Investors continue to fuel market activity

Stock trading settlement information for North America analyzed by AST shows that retail investors and traders continue to sit in the driver’s seat. Prime and discount brokers facilitated trades on behalf of these investors.

The financial publication Barron’s noted the significant amount of activity by individual investors and traders. In a recent article, it published that the number of account openings with online brokers offering zero commissions and fractional-share transactions have reached record levels.vi The article added comments from Julian Emanuel, chief equity and derivatives strategist at BTIG, where he stated “What caught our attention wasn’t the sports bettors or doctors trading, but the high-volume, wild price action in bankrupt shares that made us feel the public’s participation was getting frothy.”vii

Institutional investors mostly remained on the sidelines, shifting capital away from equities and into investment grade corporate bonds. Refinitiv reported in its most recent Lipper Fund Flow Report that Corp-Investment Grade funds net inflows reached $7.993 billion.viii

iGreg Robb, “IMF slashes world growth outlook for 2020 and sees sluggish turnaround next year”. MarketWatch. 24-June-2020.

iiIbid.

iiiBarbara Kollmeyer and Nicholas Jasinski, “The Dow Dropped 730 Points as Bank Stocks Slide, Virus Cases Rise”. Barron’s. 26-June-2020.

ivBen Levisohn, “The Dow Just Had a Very Bad Week. It Could Get Worse.” Barrons. Updated 28-June-2020 (Original 26-June-2020).

v“S&P/TSX Capped Financial Index”, Toronto Stock Exchange Index. 29-June-2020. Retrieved 29-June-2020 from TMX Money.

viRandall W. Forsyth, “The Stock Market Is Set for One of Its Best Quarters in Decades. Time to Prepare for the Worst.” Barron’s. Updated 29-June-2020 (Original 26-June-2020).

viiIbid.

viii“Fund Flow Reports for the Week Ended 06/24 Are Now Available”. Refinitiv Lipper US Fund Flows.

This commentary is provided for general informational and/or educational or discussion purposes only, is not intended to offer legal or investment advice, and may not be relied upon as legal, investment or any other advice. If you have a specific question regarding a particular legal issue, you should consult a legal professional.
           
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