Global equities stage second quarter rally

US and European equities posted a sharp recovery during the second quarter, buoyed by fiscal and monetary stimulus.

The S&P 500 gained 21% during the three months to the end of June, as stimulus from the Federal Reserve and Congress, coupled with the relaxation of some Covid-19-driven economic restrictions, aided the market rebound. Volatility also declined, with the VIX closing the month at 30.43.

Continued strong performance from the tech sector and a rebound in value boosted European equities in the second quarter, with the S&P 350 closing the quarter up 13%.

However, “a spike in globally reported Covid-19 cases made for a choppy end of the month, just as many European countries unlocked,” said S&P Global analysts.

UK stocks have disappointed so far this year, with the S&P United Kingdom down 18%, continuing a broader trend of underperformance that extends back past the Brexit referendum in 2016.

Global equity markets finished the quarter posting gains of a rarely seen magnitude, across all regions; the S&P 500, for example, increased by the most since the fourth quarter of 1998, said Federated Hermes head of global equities, Geir Lode.

“Nevertheless, it is perhaps worth remembering that markets have still declined so far this year and we wouldn’t be surprised if they continued to rally, supported by an abundance of liquidity and signs that the macro environment is recovering quicker than expected,” he said.

While the asset manager remained positively inclined towards equities, it recognised that there were several potential risks that could create a huge amount of uncertainty, said Lode.

“As such, we remain of the belief that diversification, alongside a preference for companies with durable business models that are attractive from multiple perspectives, will be key in negotiating the market environment in the coming months,” he said.