Please find below our Investment Market Update as at 7th April 2020.
After the recent plethora of communications, we are back to updating you twice a week. Friday’s quarterly communication, I am pleased to say, was very well received. Thank you for the positive comments.
Please find below our Investment Market Update as at 7th April 2020.
Blue Sky Investment Market Update
Glimmers of hope
Last week was a difficult one for equity markets, especially Europe and Japan. Yesterday however, the tide turned dramatically as reports suggested there may be a glimmer of hope in terms of controlling the virus on a global level. The S&P 500 rose to its highest level in 3 weeks, rising by +7.06% on Monday, whilst the FTSE 100 World Index rose by +5.72%. As I write on Tuesday, 7th April, the FTSE 100 is up +3.3 % and the FTSE Mid 250, up by a whopping +6.61%.
Timing investments
In my communication on Friday, I wrote about how investment markets are forward looking, and economic figures are backward looking. Add into the mix the emotion related to news flow in real time, and it is understandable why any decision about investing new money into the markets, can be paralysing. Yet, it increasingly looks as though the time to have bought into the equity market was some two weeks ago, just before the extraordinary stimulus package was announced in the US. Now, I say the ‘time to buy’ as if one was trying to call the bottom of the market which is always a very difficult thing to do.
Investing into a falling market is also very unnerving, unless you are investing periodically. Investing into a rising market which appears sustainable, is much better for the psyche.
Market behaviour
I think the comments from Sanjay, a Partner and Head of LGT Vestra’s model portfolios service, gives us a good perspective. He talked about the sequence of events before we get to the juncture of investing with confidence.
Phase 1 It’s easy to think that this is a buyers’ market as prices fall.
Phase 2 A realisation that this is worse than anticipated.
Phase 3 Aggressive selling on large volume as algorithms kick in and sell. Investors also raise money from relatively safe haven assets causing these assets to fall in value too.
Phase 4 Emotional selling by consumers. When there are emotional conversations, we are generally near the bottom, when fear is at its worst.
Phase 5 Support from markets by central banks and this time, Governments.
Phase 6 After an initial boost to asset prices, the markets pause and try to interpret news flow.
Phase 7 Any positive news flow is seized upon and there are price surges, although negative data can cause a pull-back in prices.
It would appear as though we are in phase 7 but, of course, what we don’t know is whether the glimmers of hope are sustainable. There will certainly be a demarcation between how certain sectors will respond.
So, why is there more optimism?
The optimists are pointing to more attractive valuations, extraordinary stimulus and slowing death rates across many major countries. However, those who are more sceptical are naturally concerned about the spread of the disease, the impact on economic data and the likelihood of many companies going bust.
We have always stated that the investment market response would be quick and as figures were received about the number of deaths in New York, showing signs of hitting a plateau, US markets surged. There was positive news in Italy as well as it had the lowest number of reported infections in nearly 3 weeks, whilst in France, cases seem to have stabilised.
Existing client portfolios
This morning we held our quarterly investment meeting (remotely of course) and it was agreed to leave all holdings in situ. Yesterday’s surge reinforces that coming out of the market for a short time when assets/funds are switched, could be problematic.
Summary
It’s encouraging to see equity markets rise strongly and hopefully we have seen the bottom of the correction, now that central banks and Governments have provided financial support and stimulus.
The key is, how long will countries across the world be in lockdown? The shorter the period, the better for anticipated corporate earnings which, in turn, drives stock market performance.
‘Confidence’ is a word which has been used sparsely in recent weeks, but we look forward to the glimmers of hope manifesting into something more sustainable.
Best Wishes
Gary and the Investment Team
RISK WARNING
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.