Market Commentary – Q2 2020

Q2 2020 Market Commentary

Though Q1 2020 ended with the worst of the market sell-off and uncertainty around COVID-19’s toll during the course of the pandemic, Q2 can be summarized by a sharp recovery across most asset classes, as Central Bank intervention, government stimulus packages, and promising prospective treatment methods spurred market optimism.

Unemployment remained elevated in the U.S., albeit at lower levels than initially expected. Additionally, surprisingly strong earnings from some sectors, and an ad infinitum ‘easing’ program announced by the Federal Reserve, caused equity markets to rally 15-20% during the quarter, with U.S. stocks leading the recovery. The Wahed FTSE USA Shariah ETF was up 24% during the quarter.

Gold, to which Wahed has increased exposure in global portfolios, saw strong inflows and performance during the quarter, up as much +13% in the U.S. Strong investor demand and negative real rates may serve as a tailwind for gold, and reaffirm its value in portfolios.

Credit market spreads have continued to tighten in response to Central Bank purchase programs (as spreads tighten, bond & sukuk prices go up), leading to strong sukuk performance in the quarter. Wahed (Sukuk) funds returned roughly 6% on average (in USD terms).

As there is still no vaccine for COVID-19 and the scale of the damage done by the virus remains to be seen, we expect heightened market volatility to continue as investors balance weak economic data with supportive Central Bank policy and speculation around the duration of the pandemic.

 

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