The week to Wednesday’s close saw global stock markets give up more ground as the powerful six month rally from the March lows came to an end. Global equities fell 4.0%, led by the US which fell 4.4%. European equities gave up 4.2% and the UK market 3.2%.
With hindsight market movements can often seem ‘obvious’: After such a large rally a correction was overdue. Six months ago, as stock markets started to climb from their lows we commented that investor focus was firmly on the impact of global lockdowns, on economic activity and on how industries and companies were faring. The key questions for all were how long this would last, which companies would end up in a stronger position, how governments would finance spending and how Covid might change behaviour. What ‘shape’ would the recovery take? Would it be a V, W, U or some other shape and how volatile would markets be as assessment of this changed over time?
Six months later we can see that most sectors of the global economy have experienced a sharp V shaped recovery from the extreme lows of the second quarter, a period when some travel and leisure related businesses saw activity fall close to zero. Given the unprecedented scale of the slowdown this much was to be expected, and the general rise in stock markets as money flowed back in, predictable.
While national lockdowns for Covid are likely a thing of the past the concepts of lockdown, wearing masks and changing individual behaviour in order to reduce the spread of disease are now embedded in the West in the same way they were in Asia during the 2003 response to SARS. We need to get used to them, not over-react when we see them. The probability of approving a vaccine this year and being able to distribute it widely were low to start with and fall day by day. Where we find ourselves now is no surprise: Covid will remain a drag on global economic recovery long into 2021.
For some industries the outlook is bleak in the short term, particularly for companies that entered the downturn with much debt on the balance sheet. But while the short-term outlook may have darkened, the point where life returns to normal continues to get closer.
The long-term outlook is little changed.