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A cursory glance at major global equity indices shows a pretty clear V-shaped recovery—with a total return of 1.6% in the S&P 500® Index from February 19, 2020 through October 26 and similar pictures in the Russell 2000 and the MSCI ACWI ex US Indices. So are stocks just invincible? Or considering the available economic data, nascent spikes in COVID cases in Europe, and historically poor corporate earnings, is the market too optimistic? Breaking down the broad indices provides some interesting insights for both the bull and the bear cases.
Beginning in the 1970s, Milton Friedman and his economist colleagues at the University of Chicago successfully steered private enterprises to prioritize the pursuit of profits as their sole social responsibility. While we will not venture to agree or disagree here, several forces are seemingly working together to shift this mindset. Though still in its infancy, our research and work on ESG for the past two years suggest a more balanced “stakeholder primacy” is taking hold.
Featured Author: Jessica Lin
Jessica Lin is an analyst on the Artisan Partners Sustainable Emerging Markets Team.
E-commerce was growing markedly faster than overall retail sales before COVID-19, especially in EM. But the global response to COVID-19—drastic containment measures and cautious economic reopenings—led to a surge in online shopping fueled largely by millions of consumers shopping online for the first time. China’s Alibaba reported an increase of 28 million mobile active users in Q2, while Latin American e-commerce company MercadoLibre reported 16 million new active users during the quarter.
While not as dramatic as during the global financial crisis, dividends in 2020 have taken a hit: Dividends globally declined some $108 billion to $382 billion in Q2—a 22% YoY drop. An estimated 27% of companies globally cut their dividends, including more than half of European companies. In the UK, 176 companies canceled dividends altogether. The story is slightly different in the US:
As governments globally seek fresh means of stemming the economic devastation wrought by COVID-19 and its attendant lockdowns, a common consideration is infrastructure spending—hardly surprising, considering governments have historically turned to infrastructure as a means of creating jobs and, ideally in turn, goosing consumption (see: Alphabet Soup, FDR). Considering it’s a public good which can often go begging when the economic outlook is rosier, infrastructure seems a natural candidate amid a period of flagging aggregate demand. And indeed, 2020 has seen its share of planned infrastructure spending globally.
The pandemic has accelerated secular trends—such as the shifts to e-commerce and digital payments, social media’s dominance of advertising spend and the rise of gaming. It’s also intensifying normal cyclical fluctuations, pulling forward home improvement projects and pressuring retailers—particularly those reliant on shopping mall locations—to declare bankruptcy. None of this is terribly surprising. More likely to catch market participants’ eyes, the combination of COVID-19 and social media is amplifying the oldest cyclical phenomenon known to mankind: greed!