July 2020 Market Update

Welcome to July. The world (and the economy) continue to cautiously re-open. Over the last month there has been an increase in optimism for the global economic outlook as hard-hit sectors started to gain a bit of momentum and markets moved closer to pre-pandemic levels.

As always through this monthly update, we’ll aim to give you an idea of what’s happening, how investments are performing and what this all means for you.

So, what happened in the markets last month?

• New global data on activity in manufacturing and service sectors renewed optimism for a gradual economic recovery. In the eurozone, the Purchasing Managers Index gained almost 16 points - its highest level since the beginning of the pandemic.
• UK Prime Minister Boris Johnson sat down with European leaders for his first set of talks in Brussels since the UK left the European Union. Both parties agreed to intensify negotiations over the summer months to make sure a deal was signed by the end of 2020.
• The US Federal Reserve announced it would start purchasing individual corporate bonds as part of its larger fiscal relief package. This helped bolster momentum in the markets even as the US saw an uptick in COVID-19 cases.

And how are investments performing?

At the beginning of the month markets continued to build on May’s momentum with US stocks erasing all of their losses for the year. Despite some mid-month volatility, US and European stocks had one of their strongest quarters to date and in the UK the FTSE 100 had its best quarter in a decade.

At Wealthsimple, we continued to see gains across the majority of our portfolios.

• This month's best performer? Your Emerging Market equity investments were up 6.03% over the month of June. A decrease in concern over coronavirus’ economic impact helped bolster businesses’ potential future profits and share prices in these geographies.
• This month's worst performer? Your UK Government Bonds were down -0.20%. As we’ve seen in previous months, when the outlook for the global economy is on the upswing equities tend to outperform bonds. The same is true in the reverse scenario when the global economic outlook is down. And that’s why you have both types of funds in your portfolio.

Lastly, what does all this mean for me and my money?

In this stop and start market environment it can be hard to resist the urge to pull the duvet over your head and hide your money under your mattress (or in a savings account).

But, for the average person saving for the long run, cash savings make little sense beyond having an emergency fund given interest rates aren’t keeping up with inflation in today’s low interest rate environment and you’ll miss out on gains from long-term investing. Here’s a great example of why from Morningstar : £10,000 put into a savings account paying 0.9% would give you £12,522 in 25 years whereas if you’d invested in the FTSE 100 (the UK’s largest stock index) over the same period of time, you would have £45,000 despite market ups and downs.

Remember, the key to long-term success as an investor is staying invested in all market conditions and ignoring the noise (pundits, predictions and politics) along the way. That way you’ll secure the financial future you deserve!

That’s all for now but if you have any questions you can always reach out to support@wealthsimple.com or book a call with a member of our investment team here.

Take care,
James
Investment adviser
Wealthsimple