US Officially in a Recession | Flow Traders Investment Competition | Week 33

Quite a hectic week has passed, with virtually all indices dropping several percent after last Thursday news. The S&P 500 dropped a staggering 4.97 percent the past week, with the AEX decreasing by 4.23%. The Dow Jones Industrial Average dropped a whopping 5.99% last week, while the Euro Stoxx 50 booked the largest loss with a -6.63 percent drop in the previous week. Nasdaq decreased by only 1.5%, and obviously the VIX soared to a 44% increase since last Thursday.

The result of these large contractions is the news that hit last Thursday in the US. The economic downturn in the US triggered by the pandemic had been officially declared a recession. The National Bureau of Economic Research made the designation on Tuesday, citing the scale and severity of the current contraction. It said activity and employment hit a “clear” and “well-defined” peak in February, before falling. The ruling puts a formal end to what had been more than a decade of economic expansion – the longest in US history. Meanwhile, US markets continued their rebound on Monday, as investors remained optimistic that the downturn will be short-lived. A recession was expected after the US economy contracted 5% in the first three months of the year. Employers also reported cutting roughly 22 million jobs in March and April, as restrictions on activity intended to help control the virus forced many businesses to close. Some economists are hopeful that the job losses have now stopped, and a rebound has begun. In May, US employers added 2.5 million jobs, as states started reopening, yet this is still a long way from economic recovery. While global growth of about 4.2% is expected to return in the following year, the outlook is still highly uncertain, and high potential for downside risks is quite prevalent at the moment.

On the other hand, US-import prices have risen by the most in more than a year in May, drive by higher costs for petroleum products and food, which could further diminish fears of deflation as the economy battles a recession. Import prices rose 1 percent in the past month, the largest gain since February 2019, after falling to 2.6% in April. Moreover, weekly unemployment claims also ended up being better than expected. The claims totalled 1.5 million last week, compared to 1.6 million Dow Jones estimated, while also being over 350,000 less than the previous week. Total claims have fallen for 10 straight weeks now, yet are historically still very high.

In Europe the UK economy contracted by a whopping 20.4% in April, by far the largest monthly fall on record. Despite the news, the GBP was still trading fairly steady, mostly due to the US news severely affecting the USD that it is most commonly paired against. In the EU, commissioner Gentiloni has stated he is confident that the 750 billion euro stimulus package, 500 billion of which will be benefits, the other 250 billion loans, won’t be barricaded by European countries in the near future. This helped the European markets recover after the Thursday news, affecting the pan-European 600 quite severely.

On to the Flow Traders Investment Competition, where Clear Water Group has held on to their first place for over two months now, with an M2 of 22.57%. They are followed by Omega Investments with an M2 of 13.20 percent, taking the second spot from Capital Phi Investments, who moved to the 3rd place with an M2 of 9.26%. The largest gainer this week was DHANDHO Investors, moving up 11 spots to the 14th place with an M2 of –4.98%. The group losing the most spots this week was Liquid gold, losing 15 spots and moving to the 32nd place with an M2 of –19.44%.

Sebastian Cornielje