What’s Going On Here?

Hold onto your hats, cowboys: a leadin’ US stock market index, the Dow Jones Industrial Average, is now back in a “bull market”. Yeehaw.

What Does This Mean?

Analysts have credited the Dow’s rise to the recently announced $2 trillion of economic stimulus the US government hopes will help workers and companies survive the pandemic. Some also reckon international investors might’ve been encouraged to buy up less expensive-looking US stocks after the US dollar’s value dropped slightly versus other currencies last week.

Whatever the reason, this is the second time the Dow’s made history this month. The first was when it dropped over 20% – and entered a bear market – in a record twenty days. The second was when that bear market became the shortest-ever, with the Dow rising over 20% last week and re-entering bull territory.

Why Should I Care?

For markets: Whoa there.
Stock markets are inherently forward-looking, which might be why investors sold off stocks throughout last month in anticipation of a coronavirus-induced global recession. So even though we probably are in one right now, there’s no official data to back that up just yet. Still, investors’ recent about-turn on the Dow could suggest they’re beginning to look past the economic declines predicted for this quarter and next. For the rest of the year and beyond, they might be hoping low interest rates and government cash boosts will give growth a much-needed tailwind.

The bigger picture: Ain’t their first rodeo.
Whether the US stock market’s initial rebound will last partly depends on how successfully the country gets coronavirus under control, as well as how quickly the economy’s able to return to normal afterward. Optimists think a short-term “blip” shouldn’t keep investors from buying shares for the long term. But naysayers argue stocks historically take around 18 months to recover after signs of a recession – meaning this rise will be short-lived (tweet this).

3/3

Clean Break

What’s Going On Here?

Investors who’ve kept their hands clean with companies that score well on environmental, social, and governance (ESG) measures have found their portfolios currently look healthier than most.

What Does This Mean?

Like plenty of portfolios caught in the recent coronavirus-fueled stock market selloff, ESG investment portfolios have fallen this year – but only by around half the broader market’s decline. That’s consistent with research from the world’s biggest investment manager, BlackRock, which is ramping up its own socially responsible investments.

ESG’s supporters might argue the group’s outperformance is because ESG-friendly businesses simply have better fundamentals than those in generic portfolios, thanks to policies that don’t damage the planet. And while it remains to be seen how true that is – there are other reasons those companies’ shares could perform well – it does seem like the exclusion of certain environmentally unfriendly companies has served them well…

Why Should I Care?

For markets: More like spoil companies.
Oil isn’t a feature of most ESG portfolios, which means they’ve avoided the significant losses caused by the tumble in oil companies’ stock prices this year. That’s been driven by the falling oil price: a barrel costs almost what it did in 2002. Lower demand for the black stuff amid declining economic growth is partly to blame, as is Saudi Arabia’s decision to flood the market in its price war with Russia. And when oil’s cheap, the world’s big producers can’t make as much selling it – which has led their stock prices to fall.

The bigger picture: Not as bad as you’d think.
ESG investors might actually be surprised to find some energy companies are technically a good fit for their portfolios: their polluting effects might, for example, be offset by the gender balance of their boards. In fact, according to ESG screening platform Arabesque S-Ray, the average energy company ranks 50 out of 100 on environmental, social, and governance measures – a score that puts them above the average finance firm.

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