Seven reasons why the trend in shares will likely remain up, albeit with bumps along the way

September 1st 2020

Key points

  • Shares have had a strong run-up from their March lows with US shares now at a record high.
  • While shares are vulnerable through the seasonally weak months ahead in the run-up to the US election, the positives – including good progress in developing vaccines, the downtrend in the US dollar, signs of recovery and low-interest rates – are likely to see shares push higher on a six to 12-month view.
  • This is likely to see US shares start to underperform.



Share markets have had a spectacular rebound from their March lows. The rebound has been led by the US share market which is up 52% and has just risen above its February record high, making it the fastest recovery after a 30% or more fall on record. Other share markets have lagged but are still well up from their lows. This includes the Australian share market which recently rose to its highest level since early March.


7 reasons 1
Source: Bloomberg, AMP Capital


A common concern remains that the rebound is irrational. How can shares be so strong when June quarter GDP collapsed – by an average of -10% in developed countries and an estimated -7% in Australia – and coronavirus continues to reap havoc?

But as the investor Sir John Templeton once said: “bull markets are born on pessimism, grow on scepticism, mature on optimism and die of euphoria” and we have certainly seen the run-up since March occur against the backdrop of a lot of pessimism. The plunge in shares into March led the coronavirus hit on the way down and surprised many at the severity of the fall and now it’s led on the way up despite lots of worries. It’s also worth noting that shares have spent much of the period since early June rangebound (and apart from the US share market, many still are) and this has helped correct the excessive speed of the run-up into June that left shares technically overbought & due for consolidation or correction.

More fundamentally though, the positives for shares continue to outweigh the negatives. Let’s start with the negatives.


The negatives

Several negatives continue to hang over shares and are often cited as the main reason to expect sharp falls ahead.


7 reasons 2
Source: AMP Capital



7 reasons 3



The positives

However, there are a bunch of positives providing an offset.

7 reasons 4
Source:; AMP Capital



7 reasons 5
Source: Bloomberg, AMP Capital
  • Sixth, the plunge in interest rates and bond yields have increased the present value of shares, which explains why PE ratios are so high. So shares remain attractive despite lower earnings and dividends because the alternatives like bank deposit rates are even less attractive.
7 reasons 6
Source: RBA; Bloomberg, AMP Capital



Concluding comment

On balance, the positives dominate in our view. Shares remain vulnerable to short-term setbacks given uncertainties around coronavirus, the speed of economic recovery, the US election and US/China tensions. But the positives should keep any pullback to be a correction and on a 6 to 12-month view shares are expected to see reasonable returns.


But will the US share market continue to outperform?

As evident in the first table, US shares have outperformed since the March low. They have also outperformed year to date with US shares up 5.2%, but Eurozone shares down 13%, Japanese shares down 3.1% & Australian shares down 8.5%. The strong outperformance by the US share market reflects its relatively low exposure to cyclical sectors (like manufacturing, materials & financials) that were hit hard by a coronavirus and greater exposure to growth sectors like IT and health that benefit from coronavirus and very low-interest rates. As the global economy gradually recovers and interest rates bottom, this will benefit cyclical sectors relative to IT and health which have become expensive and this will likely see US shares underperform relative to non-US shares, including Australian shares.

In terms of the US election, a Trump victory would likely benefit US shares (tax hikes averted) but a Biden victory would benefit non-US shares (more harmonious foreign and trade relations).


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.