Q1 Market Update

Q1 2020 Market Update

"In a world tired of austerity, economies could enjoy continued stimulus as governments spend to promote recovery." John Butters - Chief Investment Officer

A brief market overview

Stock markets fell in the first three months of 2020 as the coronavirus made its presence felt in the global economy. At their worst point, global stocks were down 22% from the start of the year, about half-way to their largest historical decline. However, central bank action around the world, combined with government measures both to ease the economic crisis and fight the virus, seemed to turn the market tide. By the end of March, global markets were down 16%. At the time of writing (May 2020), they are down just 7% for the year to date (comparing well to UK equities, down 20% at present).

What is the market outlook?

On the pessimistic side, it could be that prolonged social distancing or a second wave of infection drives markets down again; that economies are more scarred by lockdown than the markets expect; or that higher taxation is enacted in order to reduce government debt. On the other hand, it could be that markets rise from here. If that seems unlikely, consider that markets tend to bottom out when fears are at their highest, not when reality is at its worst. In March people were talking about lockdowns stretching into months and even years. Now, lockdowns are slowly ending around the world and a strategy of test-and-trace looks possible. If it works, that means an increasingly sunny outlook. Moreover, in a world tired of austerity, economies could enjoy continued stimulus as governments spend to promote recovery.

Our long-term outlook remains positive

In my first-quarter commentary I quoted New Scientist magazine’s view that a pandemic was likely but said that important events in human terms often had a surprisingly small effect on markets. In the event, the effect on markets was large in March; but as of today, it has been relatively small. Market commentators love to say that we are living in unusually uncertain times, but that is not true: we usually do not know what is going to happen next. There is only one road to long-term returns, and it is a bumpy one. The rational response is the same as ever: if you can afford to take the bumps, keep travelling.

All Data Source: FE Analytics. Performance based on the iShares Core MSCI World UCITS ETF.


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Important information

The information contained in this article does not constitute financial advice or a personal recommendation.  Past performance is not a guide to future performance. The value of an investment and its income can both increase and decrease and you may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange.