Data released this week shows that the number of Covid-19 cases has increased in 21 US states over the last fortnight. It’s too soon to make drastic statements but this could be the early signs of a second wave of infections which governments have been so keen to avoid as they lift lockdown rules.
The UK’s GDP fell 20.4% in April against the backdrop of an economy paralysed by the Coronavirus lockdown. The one-month fall is the largest on record, surpassing drops experienced in the wake of the 2008 crisis. Given the extent of economic inactivity over the course of April, this drop should not come as a surprise to investors.
The Federal Reserve Chairman Jerome Powell this week declared that the US faces a “long road to recovery”. The median expectation of the Fed’s policymakers is that it will be 2022 before this year’s GDP losses are fully recovered; that suggests more than two years of lost growth. Monetary and fiscal support continues to work overtime to support asset prices in the face of an ominous economic outlook.
As an investor, it’s rarely a good idea to anchor yourself too strongly to one particular outcome; prudent investing requires that all potential outcomes are considered and analysed. When the FTSE 100 dropped almost 11% on 12th March, it was apparent that fear and pessimism had taken a choke-hold over markets. It’s important to remember that sentiment can be overly optimistic just as easily as it can be too pessimistic. The reality is usually a moderate middle ground.
It can be said with relative certainty that we will eventually recover from the effects of the Coronavirus; what is far less certain is how quickly this return to normality will ensue. This realisation doesn’t mean that the eventual recovery should be called into question nor that asset prices will retest their March lows, but as increasingly worrisome public health and economic news sways markets, short-term corrections are a possibility which might prove to be a buying opportunity if valuations become more attractive.
The short-term uncertainty of how quickly we’ll return to normal has to be balanced against the longer-term desire to grow wealth and preserve it against inflation. History shows us that investing in quality, durable businesses protects wealth against inflation over the long-term. However, investors need to be willing to weather storms of volatility and withstand occasional drawdowns. As long-term investors, we adhere to our consistent investment framework, allowing us to keep discipline even as markets fluctuate, ensuring client assets are best placed to grow over time.
Quote of the week
"The donkey has been arrested as it has been named in the FIR along with other suspects.” Station House Officer of Rahim Yar Khan Police Station.
Police in Pakistan have arrested a donkey on gambling charges after accusing it of being involved in a race that people watched and placed bets on. In the bizarre story, a video of the animal being tied up outside a police station has gone viral. Eight men were also arrested in the same case and were granted bail the day after. On Wednesday the court handed custody of the donkey back to its owner on condition of safe-keeping until the case was decided.
All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.