Light at the end of the tunnel?
There are some signs that the restrictions imposed on much of the world are starting to have an effect. China reported its first day with no deaths on Monday last week and while they are still reporting new cases, the numbers are small and almost all are imported rather than being locally transmitted. In Spain and Italy, the worst affected European countries, death rates appear to have passed their peak and both countries are reporting significantly lower new cases. In the UK, although we are several weeks behind Italy and Spain, the current trend also suggests at least a levelling off.
While difficult to classify this as an improvement given the sad loss of life, at least the situation appears to be getting “less bad”. This has inevitably led to discussions about when restrictions may start to be lifted. Spain has extended its general restrictions but is allowing ‘non-essential’ workers to return, Italy is allowing some smaller shops to re-open and Denmark is re-opening schools this week. In Austria, they are intending to phase activity back with manufacturing, construction and small shops being allowed back, larger shops two weeks later and restaurants and hotels a further two weeks after that. In the UK, while restrictions are likely to be extended, we at least have the benefit of seeing the effect of these changes in other European countries.
Regardless of the specific approach, it is becoming increasingly apparent that the return to ‘normal’ life will be gradual and governments will take a ‘phased’ approach so they can assess the impact of their decisions on the spread, or otherwise, of the virus.
Most stockmarkets have staged a decent rally in the last few weeks, initially due to the significant response by governments and central banks but then because of the positive trends in the virus discussed above. Since the FTSE-100 reached its most recent low point of 4993 on 24th March 2020, it has risen by +16% to 5814 on 14th April 2020. The S&P500 in the US is up +26% which is, incredibly, classed as a bull market (up 20% or more).
Whilst this is welcome news, we are hearing that trading volumes are thinner than normal (i.e. not as many people are investing) which means it would be wise to treat this rally with caution. There is still a lot of economic and corporate bad news to come through and while markets may be prepared to look through this short-term pain, I would be surprised if there were not further bumps ahead.
What does economic recovery look like?
Clearly, the downside will be significant as many of the world’s workers have been told to stay at home. But, assuming the actions of governments have bought time to get through the worst of the virus spread, the key question is what the recovery looks like. The leading potential scenarios are:
V-shaped recovery – growth falls sharply but then rebounds just as sharply once economies remove restrictions.
U-shaped recovery – growth falls sharply and then stagnates for a time before recovering sharply again.
W-shaped recovery – growth falls and recovers sharply but then the virus reasserts itself and we go through the same process again.
Nike-swoosh (or tick) – growth falls sharply but only recovers gradually.
I guess the obvious point to make is that no-one knows yet. The other key point is that whilst these scenarios are different, they all suggest a recovery of some type.
While no-one likes to consider their own mortality, sometimes it is necessary to consider what might happen. Wills are an important document which everyone should have and powers of attorney can be important as we get older. But it can also be incredibly useful to take some time to organise your finances so that they are easier for someone else to pick up if needed. Simple things like what assets you have and where they are can make it much easier for relatives dealing with your estate.