The second quarter of 2020 has been a really difficult one for all countries around the world mainly because of the coronavirus crisis and the sometimes extreme measures taken to limit its propagation.

To face the challenges that come with the situation, countries (with the US, China, and the Eurozone atop the list) had to contract an additional debt of $11 trillion, higher than the global debt level in 2019 according to the Institute of International Finance (IIF).

Despite this shock, which is unevenly felt in countries, stock markets are trying to find their footing. On June 30, which is the last day of the second quarter, U.S. stock markets reached their highest quarterly level since 1998, according to data provided by Bloomberg. The S&P 500 index, which covers the 500 largest market capitalizations in the US, grew by 20% over the period, spurred by good performances by tech giants such as Apple, Amazon, Alphabet (Google), and Microsoft. The MSCI Euro index increased by 19.6% while the MSCI EAFE Index (Europe Australasia and the Far East) rose by 13.9%.

During the lockdown, tech stock values were very dynamic. Companies operating in this segment helped keep the world connected and because their services are fee-based, investors saw them as safe havens able to withstand the coronavirus crisis. The US markets have also experienced a spectacular increase in small and mid-caps. The S&P 400 Mid Cap rose by 23.4%, the S&P 600 Small-Cap by 21.7%, and especially the Russell 2000 Small-Cap increased by 25.0%, outperforming the S&P 500 benchmark.

One may wonder how such good performances can be achieved in this tough context. Indeed, before the crisis and lockdown, stock market values were already much higher than those of the companies that supported them. According to several experts, government bond buybacks by the world's major central banks, coupled with the fall in interest rates to near-zero levels, injected additional liquidity that found no other opportunities than stock market assets.

When the coronavirus hit, investors sold their securities on demand to avoid a total loss of their assets. But at the same time, with stock market values at new lows and hopes of recovery having grown, many market players started to project a V-shaped recovery, which implies a strong rebound after a sharp fall.

However, the rise in stock market values was not significant enough to offset the slump in March 2020. Most of the indexes, especially in emerging and European countries are on two-digit losses. And the third quarter starts with its share of uncertainties.

Governments and central banks across the world have little or no options. Some analyses now project not a V-shaped but rather a U-shaped recovery, meaning a slow return to pre-covid levels. On the other hand, the US Federal Reserve is eying a W-shaped recovery, as another decline could happen. Companies will also have to adapt to the new requirements of investors who are now very sensitive to sustainable development issues. The world has experienced what global disruption can look like, and many of its capital-holding citizens believe that choices should not only be based on immediate profit. According to Moody's, companies will also need to demonstrate capacities to monitor both their internal and external environments.

Idriss Linge