FTSE 100 vs S&P 500 Price-Performance Analogy for Month Of April

The month just gone by was relatively better than the previous one. Two of the major global equity benchmarks – FTSE 100 and S&P 500 ended the month of April on a positive month.

Though, the momentum in US equities was relatively higher compared to the UK stocks in April 2020. As the broader index of the United Stated bagged ~ 18% on MTD basis for the period ended on April 30, 2020, on the other hand, the broader equity gauge of London bourse surged ~ 8% during the same time, which reflects that pull-back in April after equities were beaten down in March 2020 was comparatively higher on the Wallstreet as compared to the London Stock Exchange.

MTD FTSE 100 vs S&P 500 Performance. Source: Thomson Reuters.

The relative underperformance of UK equities against the S&P 500 stood at 10% in April 2020. Further, 477 out of 500 constituent stocks of the S&P 500 ended April on a positive note, whereas 76 out of 100 FTSE 100 constituent stocks ended the month just past the red zone. It implies that around 95% of S&P 500 constituent stocks delivered a positive price return, whereas 76% of the FTSE 100 stocks ended on a positive note in April 2020.

Top 10 performers on FTSE 100 and S&P 500 in April 2020

(Source: Thomson Reuters)

Technical Trend

Despite a positive price performance that both the indices recorded in April 2020, the FTSE 100 and S&P 500 index ended well below their crucial long-term and short-term support levels of 200-day, and 100-day SMAs, which reflects that the long-term trend still remains largely unfavourable.

On April 30, 2020, the FTSE 100 index’s price/200-day SMA ratio stood at 0.84x, which implies that the index traded approximately 18% below its long-term crucial support level, whereas the S&P 500 index traded just 3% below its long-term support level.

The above figure reflects that, despite a blood bath witnessed in the global equity market recently, the pace of recovery in the US equities is much higher than the UK, despite the fact that the US market remains the most affected country amid this COVID-19 pandemic.

Major events of April 2020

• April 20, 2020 “Black Monday" in the Oil-market history

In the history of oil market, April 20, 2020, will be remembered as "Black Monday", as on that historic day, the US WTI Crude Futures Contract price fell below zero and slipped into the negative zone for the first time ever. The Future contract of WTI Crude Oil for May delivery fell below zero and traded to a record low of -$40/bbl on The New York Mercantile Exchange (NYMEX).

On Black Monday, WTI May delivery contract started the session at $17/bbl, and most of the contracts that had to be carried over to June'20 had already been made, which left a very little liquidity for traders to squared-off their open position. As the day started moving on, the price of May contract kept on diving lower and lower, which implies that the premium one had to pay to roll over its contract to June became more expensive. The remaining holders of May contract rushed to get rid of the May contract at any price; otherwise, they would have to take delivery of the contract.

On April 12, 2020, the world's energy superpowers negotiated an oil production cut deal to prop up oil prices. The OPEC and its allies like Russia, together known as OPEC+ decided to reduce oil production by 9.7m bbl/day from May 2020 to end of June 2020 in the wake of muted oil demand globally, which had emerged because of the novel virus outbreak. It was the biggest ever production cut agreed upon and accounted for 10 per cent of the world’s average production of the oil.

However, amid this pandemic, the demand for oil tumbled by ~ 29m bbl/day, which implies three times of production cut agreement. The demand uncertainty is still up in the sky, and no one knows when it is going to pick up further.

• The University of Oxford began human trials of COVID-19 Vaccine

The team at the University of Oxford is working day and night to make at least a million doses ready by September even before the trial is complete. The UK health ministry has also said to be investing in mass production of vaccine manufacturing. If the trials are successful, then they can be made available to the people at a brisk pace. Some researchers have tried injecting bioengineered antibodies or Y shaped proteins by taking samples from already cured patients, animals, and previous viruses to see if the antibodies can fight against the virus.

There are approximately 70 companies which have so far submitted their candidate vaccines, out of which six companies have begun human trials, whereas rest are still struggling in pre-clinical trials. The University of Oxford is among those six which have started human trials and results are also quite favourable.

A vast majority of market movement in April 2020, was driven by optimism over COVID-19 vaccine, however, given the ambling and a rather lengthy process of vaccine development, it does not seem that a COVID-19 vaccine is going to be available before 2021.

University of Oxford vaccine trials is moving well ahead of its competitors in the global race for a vaccine to stop Covid-19, whereas other players have to start small clinical trials on a few of hundreds of respondents, the scientist at Oxford University had a head start on the vaccine. That has aided them advance their process and plan tests of their new coronavirus vaccine involving more than 6k patients by the end of May.

Moving forward in May 2020, there are hopes that the market will pay close attention to vaccine breakthrough news, and any favourable announcement could drive the market higher in circuits to celebrate life over death.