COVID-19 – Market Update 29/04/2020

The FTSE 100 has pushed back through the 6000 barrier to 6017, meaning a recovery of 1024 points since the low point on 23 March 2020. Great news but to be viewed with an air of caution as we begin to see some results reporting from the big companies.

The markets went sideways last week, despite a swathe of downbeat economic data, which means the panic is over and markets are looking for clues about the future.

The Covid-19 curves are flattening or trending down, and numerous areas have set out loose plans for easing lockdowns, including New York which reported its lowest death rate in a month over the weekend.

Several countries in Europe have set out schedules for reopening but the UK extended its lockdown for three weeks with no explanation about potential easing dates. Therefore, more difficult questions linger for investors, including:

  • When will the UK lockdown end?
  • How will companies adapt to reopening and will consumer behaviour change?
  • Will we have to lockdown again for a second wave?
  • When will we get therapeutics or a vaccine?
  • How strongly will the economy bounce back in the meantime?

Until we have the answers, markets will likely be volatile, jumping on positive developments and falling on setbacks.

From conversations with various fund managers, there appears to be an expectation that the market may fall back between now and the end of June. This will be down to the reporting of losses, cutting or cancelling dividends and the possibility of some big companies going out of business.

We heard this week that British Airways is undertaking a complete restructure and has put 12,000 jobs at risk. This may be the first of many to use the Pandemic to restructure and reduce their cost base as they look to the future. A similar pattern emerged after the Global Financial Crisis in 2008.

On a more positive note, there is a strong expectation that markets will begin to recover from July onwards as the global economies slowly get back to normal with the potential for good returns later this year and in to 2021.

Demand for equity investing will remain high as investors seek returns better than cash and that from Gilts and Bonds. The prospects for lower risk, fixed income assets do not look great so equities will represent a good opportunity for growth. There is no doubt that fund managers are carefully looking at which equities to hold as some sectors are performing well and will continue to do so long term.

Income funds are now presented with more challenges as traditionally reliable dividends are either being reduced or in some cases cancelled, as companies look to retain cash to get them through the Pandemic. Yields on Gilts and Bonds are low so finding reliable dividends will be essential to income funds.

Expectations for natural income will be more like 2.5% to 3% per annum instead of 4% to 5% per annum for the time being. We are in a recession but the expectation is that it will be a very short recession. Nothing like the Global Financial Crisis that occurred in 2008 which triggered the longest lasting recession.

In summary, some good positive signs over the past few weeks. We can expect some more volatility in the short term but look forward to a return to growth towards the end of 2020 and a possible recovery in 2021.

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This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.

About gpfm   

gpfm are an independent financial planning company dedicated to the provision of personal, professional and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.

Data and insights from Brewin Dolphin