The week to Tuesday’s close saw equity markets continue their recovery from March’s lows, led by the US S&P 500 Index which saw a gain of 4.4%. Closer to home the UK FTSE 100 Index rose 1.9% and the FTSE 250 Index of medium sized companies 3.3%. Coincidentally Tuesday also marked the close of the first quarter with the US closing down 20% and the FTSE 100 Index 24.8% lower over the period. Typical diversified portfolios, those that include fixed interest and alternative assets, have fared considerably better but there is no hiding the short-term cost of protecting the elderly and vulnerable.
Predictably, investor focus remains firmly on the impact of global lock down on economic activity and how industries and companies are faring. The key questions for all are how long it will last, which companies will end up in a stronger position, how governments will finance spending and how this event might change behaviour. While it is impossible to provide an accurate answer to any of these questions it is possible to take a medium-term view that at some point, quite soon, we will transition from being led by urgent medical need back to economic need and see that reflected positively in share prices.
We enter the second quarter expecting further turmoil as uncertainty continues, with stock markets potentially testing recent lows – a behaviour we frequently see when markets are under stress. Medical resources and capacity are building rapidly and as they do governments will increasingly focus on the need to avoid permanent damage to their economies, finances and citizen’s confidence in them. Notwithstanding our expectation of turmoil in the short-term, we expect equity markets to end the second quarter in a better position than at the start.