10 July 2020 | A battle for the heart of the stock market
There are two key forces battling each other in the stock market. One on side we have optimisim, as evidenced by the strong performance of growth stocks such as Tesla: on the other side is a bleak realism borne of fear that struggles to see beyond the next four to eight quarters. Leadership such as that of Chancellor Angela Merkel helps to allay and guide the second group, but they will need to see signs of improvement in economic activity to gain confidence. That is likely to take some weeks as the recovery grinds slowly higher.
What does it mean?
We express some caution on growth stocks as too much hope is priced into too many stocks, while only a fraction can end up being as successful as say a Tesla or Google. The environment is set to stay complex and we remain focused on four keys themes: 1. Managed credit 2. Rebound in China 3. Climate/ESG 4. A (delayed) overshoot in the equity market