With mounting evidence suggesting that markets are beginning to move forward, George Square Financial Management shares an end-of-week market update from Albermarle Street Partners.
Should someone emerge from a month of seclusion, perhaps wisely deciding that March 2020 was the time to take a sabbatical in some distant mountain cave, they would probably look at the world today and simply say; ‘well…that escalated quickly.’
The sheer pace of the changes that have taken place in life are dizzying. No aspect of normality has been spared as we have all been forced to accept a new way of living, working and relating to each other. However, as we have said before whilst we personally stand dazed and confused by the change in our lives, the stockmarkets on which we count to fund our pensions and investments carry on brutally discounting the cost of the crisis so that they can move on.
Market update: moving forwards
There is mounting evidence that those markets are now moving forward. In essence, share prices have discounted a ‘normal’ recession. Of course, we know that this will not be a normal recession. In fact, the size of the fall in global output that all economies will feel in the second quarter of this year may well be the sharpest ever recorded. However, markets are betting that whilst it will be worse in the short-term, it will also be shorter than other recessions. Therefore, they hope that overall it will be roughly the same. We can only hope markets are right.
For this reason, share prices have remained volatile this week but have not touched the low points they have hit in this crisis. They have also proved able to digest some quite bad news – such as the dreadful dividend cuts that have been necessary – without truly capitulating in the way they did at the start of March. We can take some comfort from this but must not discount the possibility that they could still fall back to their previous lows in the weeks and months ahead.
Impact on investors
However, whether there are some more modest falls or not we do believe that for long-term investors the current price of shares represents a good point at which to gradually increase your holdings.
Anybody doing so should know that they may be more volatile in the short-term, but in the long-term it is the fundamental value of companies that matters and on this basis shares now look attractive.
We are not, however, ready to take risk in bond funds. Here, we worry that in the days and weeks ahead more companies will prove unable to pay their debts. Whilst governments have stepped in to help in 101 different ways, there will undoubtedly be some which slip through the net. We do not yet believe investors are paid for taking this risk.
Looking to the future
So, what must we look for to see our confidence grow further? We have already seen the stabilisation in new infections in Europe that we were looking for this week. Of crucial importance from here is that we see governments move quickly towards universal testing for Covid-19. This is the key policy that would enable some of us to go back to work and our economy to become viable again.
An arms race is now underway between all Western nations to get hold of the chemicals, equipment and intellectual property needed to test on a vast scale and release populations back into the world. This is likely to do little for international good feeling.
Whilst in the UK we appear to be ahead of the curve in terms of stemming actual deaths from Covid-19, we are behind our peers in putting in place rigorous testing. However, we will get there. Once we do we can begin to consider the myriad of different ways this crisis has affected the long-term; our ways of working, our attitude to risk and cash, our view on the rest of the world and our household’s plans for the years ahead. No doubt many new babies will have been born (Coronniels perhaps) and a few marriages strained by proximity.
However, in order to begin to consider these questions, we have to note that it is now reasonable to be optimistic that it will be possible to return to something close to normality in the Summer. Yes, our lives will not be the same and yes, we will have to learn fundamental long-term lessons, but we will at least have a functioning economy.
In this context, we believe that continuing to own equities, and to modestly start increasing them, is nothing more than a cautious willingness to ‘bet on humanity’.
Get in touch
We hope this market update provides you with some reassurance. If you are feeling concerned about your investments, please feel free to get in touch with one of George Square Financial Management’s experienced financial advisers. We would be happy to provide more information and support relating to your specific circumstances.
*The information, data, analyses, and opinions in this article do not constitute investment advice offered by either Albemarle Street Partners or George Square Financial Management. This market update has been provided solely for informational purposes.