The sustained rally in global equities we have seen since the lows in March appeared to lose further steam last week. MSCI ACWI lost -1.4% in local currency terms, although this translated into a loss of only -0.1% for GBP investors as the pound sterling continued to weaken against its major trading partners. The fall was led by European stock as well as Emerging market equities. The Japanese stock market proved resilient and returned +0.04% in GBP terms, which is pleasing as this is our largest equity overweight and it tends to perform well in stressed environments.
Within Fixed Income, global treasuries rallied +0.2% and High Yield bonds sold off by -1.7%. The slight fall off in High Yield debt is unsurprising given the remarkably strong rally it has had since April.
Market action such as this has commentators pondering whether we have reached the top of the current rally and are now due a more sustained correction. This view is supported by a number of factors of which we are constantly mindful. The rally has been very strong from the March lows and has been concentrated among a small group of equities, namely large-cap US growth stocks. These FANG+ names began to wobble from their lofty valuations over the course of September and may not prove to be the safe haven they were in the initial February/March sell off. Coupled with a second wave of COVID cases and the forthcoming US elections, investors will likely do well to maintain exposures that are balanced between geographic and style-diversified equity drivers and liquid non-equity risk-reduction components.