The results of the first half of 2020 on the stock market and predictions for the second half

It’s obvious that the first half of 2020 was a period, when many sectors of the economy suffered serious losses and, unfortunately, the recovery may take much longer. COVID-19 has become a black swan for the stock market and has driven the global economy into a dramatic crisis. 

At the end of the first half of 2020, the NASDAQ index became the leader in terms of growth rates among the world stock indices. It increased by almost 11.4%. This was facilitated by significant gains in shares of large technology companies. Nearly half of the total value of all Nasdaq 100 companies is accounted for by 6 tech giants: Apple, Microsoft, Amazon, Alphabet, Facebook and Tesla. NASDAQ overtook S&P (-4.8%) and DJ (-10%) for the first time since 1983. 

In general, only a few indices were in the black. The Danish KFX index rose by 10%, the Lithuanian VILSE – 4%, the Latvian RIGSE – 2%. The MSCI Developed Markets (MXWO) Index decreased by 7.7% and Emerging Markets (MXEM) decreased by 10.8%. Among the country indices with the largest capitalization there is Taiwan TWSE (-2.0%), Swiss SMI (-3.5%), and Chinese Shanghai Composite (-3.6%). The worst performers were Brazilian BOVESPA (-38.9%), Mexican MEXBOL (-29%), Indonesian JCI (-24.9%). STOXX EUROPE 50 fell by 12%, while the DAX decreased by 6.8%. 

Funds that have invested in US stocks, technology stocks and gold have performed best. Despite rising infections and poorly predictable government responses, the US stock market had the fastest recovery. 

The British stock market was recovering significantly slower in comparison with the Asian and American ones, and the British funds did worse at protecting investors from volatility. Laura Suter, finance analyst at investment platform AJ Bell, notes that the leading British Stock Exchange FTSE 100 Index has dropped 17% in six months. By the start of the pandemic, the British stock market was no longer popular with investors due to the uncertainty of the Brexit impact. The indecisive actions of the British government in response to the Covid-19, as well as one of the worst rates of death from coronavirus among the leading European countries, have only added to the fears of international investors.

Referring to Willis Owen, Morgan Stanley’s US Growth fund has performed the best with a combination of technology and medical stocks. Matthews China Small Companies benefited in a similar way from participation in the same sectors as well as from the recovery seen in the Chinese markets. 

The dominance of US-focused funds can be attributed to three key factors. The first is the Fed’s massive monetary response to the coronavirus and predictions that the Donald Trump administration will not allow a financial crisis ahead of the elections.

The second factor was the dominance of shares of large global technology companies in US indices. Finally, the third factor was that investing in the US stock market is generally perceived to be safer than all other stock markets.

Edward Altman of New York University’s Stern School of Business estimates that about 8% of all companies whose debt is speculatively valued (about 1,900 in total) will default within the next 12 months. He expects at least 165 large companies with more than $100 million in liabilities to go bankrupt by the end of 2020. 

Restrictive measures will still be in force for a long time, strengthening the habits that were born and developed during the self-isolation. That’s why the strength of technology companies, whose shares soared during the pandemic, remains high.

If we talk about the cryptocurrency industry, it has already become a part of the global financial system and economy. Analysts agreed that the price of bitcoin will continue to rise by the end of the year. However, this is possible only if the world defeats the coronavirus pandemic and prevents a new wave of COVID-19. Otherwise, there is a risk of a new fall in the stock market, which may affect the value of the cryptocurrency accordingly. At the same time, there is an opinion that digital assets, on the contrary, will benefit from the crisis. In  June Bloomberg released a report that predicted the rise in price of bitcoin to $20,000 this year.