A big turnaround for equities as markets focus on the exit strategy
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The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
A big turnaround for equities as markets focus on the exit strategy; the recent rally has been spectacular but a possible setback could provide a buying opportunity
Risk Disclaimer
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
Another extraordinary week, this time with a big turnaround for stock markets. Equity markets have been strong, with many now in official bull market territory, having risen by over 20% from their lows. Just a week or two ago, the talk was all about the unending spread of the virus, the severity of the lockdowns and the catastrophic damage to economies, livelihoods and corporate profits. Today, the markets are focused on the exit strategy. There have been partial easings in a number of European countries, including Italy and Spain, the worst affected countries in Europe. The UK has announced that its lockdown will be extended, but many believe that it will be only a matter of weeks before they and the US follow suit.
So, is it time to pile back into financial markets? I’m not so sure. Just as markets got too pessimistic when they crashed, there is the danger of over-optimism as a result of the recent rally. The scale of the bear market was not unprecedented, it was the speed of the fall that was unusual. This was partially due to technical factors, as some investors were forced to sell as the markets fell. This has reversed, and the forced sellers are now forced buyers as institutions with target weights act to restore those percentages. These rebalancing flows will continue for a while yet, but there is still scope for market disappointment for several reasons:
But we are getting ahead of ourselves – the growth in the numbers of cases and deaths due to the virus needs to come under control first. There has been a steep drop in both across Europe and the US, but we need to be careful as Monday’s numbers tend to be lower in the US, UK, France and Germany, and there may well be an ‘Easter effect’ too. News on the drug front is mixed, the eagerly awaited antigen tests have proved unreliable so far, and we are still a long way off from a vaccine, but progress on treatment trials is reportedly going well.
Back to markets, and I am watching out for a setback this week or next, as markets consolidate after a spectacular rally. This will provide another buying opportunity for those that believe economies and company profits will stage a recovery over the next twelve months.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.