SNAPSHOT2 min read

Market update – August 2020

A summary of our current economic and market views.



Charities Team

Investors starting to look beyond Covid-19

The pandemic is far from over. Cases continue to rise across the US, while there is increasing concern about the start of a “second wave” in Europe. However, there has also been good news in the battle against Covid-19. The pace of increase in new US cases is showing signs of slowing, while authorities are better equipped to manage localised outbreaks. Better treatment options are now available and there has also been further progress towards a vaccine. Although central bank stimulus has supported asset prices, global equity markets do remain vulnerable to disappointing news, as recently seen with the negative reaction to poor second quarter GDP numbers. 

Fiscal and monetary policy remain supportive

The Federal Reserve did not take further action at its July meeting, though many investors think it is likely to do so in September. This is likely a factor behind recent weakness in the US dollar. One possibility is more explicit “forward guidance”, with the Fed making future changes in monetary policy dependent on the achievement of inflation or unemployment targets. In the meantime, Chairman Jay Powell made it clear that the US economy needs additional fiscal support. Congress is debating an extension of the current aid package.

The eurozone also stands to benefit from further fiscal stimulus, following agreement on a €750 billion recovery fund. A significant portion of the funds are earmarked for investments in economic reform, including digitalisation and decarbonisation, which should lift long-term productivity growth as well as providing a short-term GDP boost. As a step in the direction of fiscal union, the fund should also help to allay concerns about eurozone stability.

“Pandemic election” could be a trigger for renewed volatility

US states are making it easier to vote by post in November’s election. President Trump has suggested that this could lead to “the most INNACURATE AND FRAUDULENT Election” in history and floated the possibility of a delay. While he does not have the authority to make this happen, his remarks at least raise the possibility that the election result will be challenged. Uncertainty over the outcome could be an unwelcome shock for markets.

There are reasons why Trump could benefit from a delay. Incumbent presidents have tended not to perform well in elections when an economy has been in recession. More time might allow Trump to benefit from a recovery. The Black Lives Matter movement, which is still a focus of attention, could also hurt Trump’s prospects. Higher turnout by black and minority voters, who have traditionally favoured the Democrat party, could be “a key factor in swinging the vote towards Biden,” according to a recent analysis by Schroders’ economics unit.

Portfolio positioning

Low interest rates and stimulus from governments and central banks should continue to support global equity markets. However, we are mindful of the risk of renewed volatility, especially given political risks and the potential for Covid-19 to delay the recovery. We continue to reduce our UK equity exposure and transition portfolios towards a more global approach, where appropriate. We have also been making allocations to infrastructure stocks in many portfolios. We believe the sector offers an attractive source of income for charities in the current environment, combined with a high degree of earnings visibility and a degree of inflation protection. Where appropriate, we maintain our allocation to gold, which continues to perform strongly. We believe the precious metal offers valuable defensive and diversifying properties.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Charities Team


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.