I had planned to write a somewhat jubilant update today as stock markets around the world have recovered, in many cases to now show positive gains during 2020. Some markets have set new all time highs in the past few days! When you consider what the world has been through over the past few months, that really is quite extraordinary.
As hard as it is to believe, the ‘crash’ only really lasted 3 weeks – most markets started falling on around the 20th of February and hit their low points in the middle of March. Since then, the general trend has been one of recovery and I was all set to write about the old investment rules (time in the market, not timing the market) proving their worth once again.
I was even tempted to add in a sprinkle of ‘told you so’ pointed towards the media who were prophesising Armageddon during that 3 week period of market crashes, but who have barely mentioned a word about the spectacular recovery since then. Even in the height of the crisis, our advice to investment clients was to ‘keep calm and carry on’ and I am delighted that in every single case where I have had one of those conversations with clients, they have heeded our advice and remained invested.
Sadly, my bubble was burst yesterday as the US market took a circa 6% hit due to concerns about a second spike in cases and a less-than-positive update from the Federal Reserve. This morning, we have had some sobering news a little closer to home, with the ONS reporting that the UK economy shrank a record 20.4%.
However, I still have reasons to be cheerful. First of all, despite yesterday’s events, most global markets are still substantially better off than they were just 3 short months ago. If you had told me on 20th March (around when most markets hit their low point) that we would be in a position where the FTSE 100 and the S&P had recovered 22% and our own Balanced Portfolios would be up around 13-14%, I would have taken that!
Second, the fall in GDP was “only” 20.4% (Please note – despite my well-known love of inverted commas, I don’t think I have ever used them so seriously – I know that 20% is a huge number). While this is a big blow, it could have been much worse given the extent to which the economy has been shut down over the month of April. The fact that we managed to maintain 80% of economic activity is a big achievement, I think. The fact that the FTSE 100 rose this morning on the back of the news suggests that the market was expecting worse.
Finally, the recovery has been one driven very much by certain sectors – technology and pharmaceuticals in particular. This means that there are other sectors (airlines, travel, hospitality, car sales etc) where there is still room for a significant recovery to take place, potentially taking markets higher as economies are re-opened.
Please don’t get me wrong – I know there is a still a long way to go before anything gets back to anywhere approaching normal, however I still believe that this crisis is nowhere near as bad as other events that the human race has lived through and ultimately prospered after.
We have better science, better technology and more information and knowledge today than at any point in human history and surely all of this combined progress will get us through this crisis (second spike or not).
When markets are in free-fall, our emotions can sometimes get the better of us and lead us to take irrational investment decisions. However, there is also a second point where our emotions can lead us astray – that time is now – that time is when previous losses have been recovered. I would strongly encourage you to read this article by 7IM to learn more:
This post shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity and is not a recommendation to buy or sell any funds of individual stocks that are mentioned in this post. Past performance is not a guide to future returns and the value of capital invested and any income generated from it may fluctuate in value.