Investment Update – April 2020

I thought I would pen a short piece about the markets as things are moving so fast.

After the Coronavirus Crash when global equity markets suffered a 30% drop, sentiment has improved considerably in April and the markets have staged a strong recovery.  Indeed, the upward move has puzzled many investors as it seems too much too soon. One could understand a quick bounce in investment values if economic activity followed a V shape – a sharp drop followed by a quick recovery, but many think we are in for a U-shaped recovery – a long slow restoration of business activity. If this is indeed the case, then markets may have got ahead of events and will probably fall back again. Only time can tell with regards to this issue.

Movements in the main indices disguise a considerable divergence in the performance of underlying shares and sectors of the markets. You won’t be surprised to read that airline stocks have, for example, dropped considerably with little recovery. Pizza delivery companies (such as Dominoes) have, unsurprisingly, seen their share price hit all-time highs. In the US, the large tech stocks have also held up very well. There’s a view that the global lockdown has accelerated many already established trends, such as cloud-based communications, home delivery of goods and services, and working from home.

The oil sector is worthy of mention after the oil price briefly turned negative in the US for a day. This was due to a shortage of storage capacity and chronic oversupply of crude oil, due to the economic shutdown. The price of most oil companies plunged and then partially recovered. Shell dramatically reduced its dividend and BP cancelled theirs altogether.

Governments worldwide are taking action to support business and industry and, more unusually, are buying assets to support prices. This activity is very prevalent in the bond markets where the US government, in particular, is buying corporate debt. This means that business and industry continue to have access to much-needed finance to see companies through what is, in many cases, a complete cessation of trading activity.

We continue to monitor and manage our portfolios. Customers generally report surprise regarding how little their investments have fallen in value. No doubt there will be further volatility as market sentiment bends to the latest piece of news, good or bad. However, we are in the business of long-term financial planning and are confident that equity investment will continue to deliver positive returns given time.