Good afternoon to you all and I sincerely hope that you have had a hugely uneventful week. As we move into the bank holiday weekend, take a moment to settle back and ensconce yourself into this week’s News, Views and Truths.
This week can be categorised by the term, “hopeful positivity”. With the Coronavirus data showing signs of abatement in the Far East, the lockdown measures initiated within the West were beginning to show statistical benefits.
In turn, this provided a glimmer of hope to equity markets, which pounced upon this like an apex predator, hungry for a meal after a winter of hibernation.
The UK FTSE 100 opened the week at 5406.17, up 10.36% from the lows of two weeks ago. The index then surged 3.39% after opening and, as I write, has gained 5.01% over the week. This performance has been replicated across many other global equity indices, with the bounce in the US markets particularly notable. The S&P 500 returned 11.89% over the past 5 days, with the Nasdaq delivering 9.92%.
And as such, many commentators are pinning their hopes on this being the start of the recovery. In technical terms, the US market has moved from a bull market to a bear market and back to a bull market in the space of 6 weeks, each event highlighting a market movement of at least 20%. Those are some big numbers.
However, I do not believe that this is the case; I cannot for the life of me see the reason why this recovery will be “V-shaped” in any way. In my view, it is much more like that a “U-shape” recovery is on the cards.
My suggestion is that what we have experienced in the last 10 days is a bear market bounce (otherwise known as a ‘sucker’s rally’). Glimmers of hope are seen by market participants as “a bottom”, forcing those investors who are desperate to cover significant losses created on the back of poor investment decisions, prior to the fall, to crystallise these and buy the market. The more people do this, the greater the bounce.
This rally is not predicated upon any solid fundamentals and therefore do not be surprised if markets turn south again. We are moving into a global recession and that will bring its own challenges.
Yet returns can be made in these environments and eventually we will arrive at a place where the global pandemic does not cause any more consternation to the markets. At that point, the focus will be on recovery, which is where my focus has been for two weeks.
I’d suggest that investors should be focusing on quality within their portfolios; names that offer sectoral dominance and robustness in the market. A focus on cash generation and low indebtedness is key moving into a recessionary period and we will be looking to maximise this across our investment portfolios in the coming weeks. Be ready to respond.
As ever, we never ever take our eye off the ball. We understand the situation that we all find ourselves in and that can cause worry. But please understand that the last thing you need to worry about is your investment portfolios; we do that for you. Focus upon yourselves, your health and please, please stay safe.
And if you ever fancy a chat; if you ever have any concerns about the markets or just stuff in general, pick up the phone. I’ve had some great conversations with clients over the past few days and to be honest, it’s good for me also. Come on now, you know I love the sound of my own voice…
So, to finish in our usual style, a playlist. Have the best bank holiday weekend that you can and I shall see you all next week.