Charlotte Street Partners



between a rock and a rebound

Written by Iain Gibson, associate partner
Edited by Kevin Pringle, partner
17 July 2020

Good morning,

Even in a year of economic shocks, to lose almost $1trn of assets under management (AUM) in a single quarter was some accolade. That was the recent state of play for the world’s largest asset manager, BlackRock, which ended 2019 managing $7.4trn AUM and then saw this fall to $6.5trn just three months later. At the same time, its profit declined by 23% year-on-year, from more than $1bn to just over $800m.
It was a bad set of results announced by the company for Q1 2020, but hardly terminal for such a global investment behemoth. It was also set against the wider turmoil gripping markets, as the true cost of the Covid-19 pandemic slowly (far, far too slowly) became clear. BlackRock’s declining quarterly performance was set in context against the 20% tumble taken by the S&P 500 index, of which the firm is a key stock, over the same period.
At a time when a week can feel like a year, three months is like casting our minds back to ancient times. BlackRock has often been described as a bellwether stock, in that its own performance can be an indicator of how the market and wider economy as a whole is performing. The firm’s Q2 results will be announced later today and analysts are predicting a strong recovery, especially as the S&P 500 has already made up the ground lost in the first three months of 2020.
Which brings us to a wider question: is the performance of stock markets any reliable indicator of the more general strength of the economy, at least in the way we often think it is? I would argue that we are at a turning point in how closely we equate a market bounce with wider economic health.
Think about it. Since the financial crash of 2008, global markets have rebounded significantly. A performance check of some of the world’s main indexes (the S&P 500, the Nikkei, the Dow Jones Industrial Average, the Hang Seng, the DAX and the FTSE 100) using the FT’s Markets Data section, shows that even the Covid drop left them well above where they were amidst the panic of 12 years ago.
But did that stock market recovery post-2008 trickle its way down to ordinary people? As we moved on from the crash, did people feel more confident about their future prospects, did wages rise to any great extent and did labour productivity grow at the rate it had before? No.
Now, in the face of a strong quarterly stock market rebound from where we were at the end of March, can we really say the short to medium-term signs are positive and that people are optimistic? Most of them remain fearful of what will happen when various support schemes instigated by governments across the world are phased out, especially if there is a substantial second Covid-19 wave. Almost every business sentiment survey of the past few months – at the time markets were moving upwards again – puts confidence at record lows.

This pandemic has exposed the fragility of the modern economy, its susceptibility to crises and the lack of resilience in some supply chains. Stock market performance is increasingly at odds, and ever more detached, from the rest of that economy. The better the financial news from the likes of BlackRock, the starker that contrast will be.


The UK’s National Cyber Security Centre has published details of a cyber group linked to Russian intelligence, known as The Dukes and Cozy Bear. The publication forms part of two accusations from the UK government that this group is targeting Covid-19 vaccine research in the western world, and that there were attempts from some Russian entities to interfere in last year’s general election.
The Court of Appeal has ruled that Shamima Begum, a schoolgirl who left the UK to join ISIS, should be allowed to return to the UK to challenge the removal of her British citizenship. The Home Office is applying for permission to appeal the judgement.
The prime minister is set to announce today that the NHS in England will receive an extra £3bn in funding to prepare for a second wave of coronavirus. He will also announce plans to increase testing capacity to 500,000 coronavirus tests a day by the end of October.
Donald Trump’s chief of staff has told reporters that the US is looking at banning social media platform TikTok, and that the move could come within weeks. TikTok is owned by Chinese internet company ByteDance.

Business and economy

British Airways confirmed last night that it would retire its entire Boeing 747 fleet with immediate effect. The airline cited the effects of the coronavirus pandemic on the travel industry. BA added that it would operate more flights on modern aircraft such as Airbus A350s and Boeing 787s. 
EU leaders hold their first face-to-face summit in five months today, as they hope to make progress on agreeing a post-virus economic rescue plan. It is unlikely that any plan for a reported €750bn stimulus will be agreed today.
PizzaExpress is reportedly drawing up plans to close “around 75” of its 470 UK outlets. The final number of proposed closures has yet to be finalised.

Columns of note

In the Financial Times, Martin Wolf looks at how the upward shift in indebtedness will add to the already strong pressures on spending and debt over the long run. He suggests that higher taxes were already probably necessary, given the pressures that will come with an ageing population; now they are essential.
In The Times, Iain Martin writes about how the UK government’s poor handling of the pandemic has “supercharged” the SNP and helped it obscure “its appalling domestic policy record”. He adds that there is growing feeling in Scotland to “take back control” from an increasingly unpopular Boris Johnson, an emotional consideration that ignores the economic reality of UK support to Scotland during this crisis, but one that is no less powerful for that.

Cartoon source: The Guardian


What happened yesterday?

US and European stocks were lower on Thursday, with the tech-heavy Nasdaq Composite down 0.7% and the S&P falling 0.3%. This followed China’s CSI 300 recording its worst day since February, sliding 4.8%, and it has not improved today, with the CSI 300 down 0.3% at the end of this morning’s session.
In company news:
Netflix reported that it added more than 10 million paid subscribers in Q2 2020, which helped towards a 25% increase in revenue, to $6.15bn, and a doubling of profit to $720m.
TSMC, the world’s largest contract chip maker, almost doubled its profit year-on-year for the second quarter, to more than $4bn.

What’s happening today?



UK Economic announcements
(10:00) GFK Consumer Confidence

Int. Economic announcements
(10:00) Consumer Price Index (EU)
(13:30) Housing Starts (US)
(13:30) Building Permits (US)
(15:00) U. of Michigan Confidence (US)

Source: Financial Times

did you know

The ancient Mayan people worshipped turkeys as gods.

Parliamentary highlights

House of Commons

No business scheduled

House of Lords 

Supply and Appropriation (Main Estimates) Bill – Second reading and remaining stages – Lord Agnew of Oulton
Finance Bill – Second reading and remaining stages; Stamp Duty Land Tax (Temporary Relief) Bill – Second reading and remaining stages – Lord Agnew of Oulton

Scottish Parliament 

In recess until 10 August (with the exception of 23 July 2020, 30 July 2020 and 6 August 2020, on which dates business may be programmed by the bureau)

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