Market Update March 2020: A Week of Rollercoasters and Government Intervention
Just over a week ago, Boris and Trump seemed to be taking a relaxed approach to tackling the threat of the coronavirus. Since then we have been told all pubs, restaurants, gyms and schools must close and up to 20,000 troops have been placed on standby as part of a ‘Covid support force’. The government has increased its fiscal support against the virus to over £350bn and has now said it will pay up to 80% of staff wages for 3 months for those employees unable to work due to the coronavirus pandemic.
From historic highs barely a month ago to historic falls and unprecedented levels of volatility, the coronavirus pandemic has triggered some of the sharpest intra-day moves in risk assets since the global financial crisis. With tightening restrictions, it is clear we are heading into a global recession of unknown proportion and duration.
Consequently, we have seen an extreme rollercoaster week in the market. The U.S. stock markets bore the brunt of the fear on Monday, with all three of the major US indices dropping by double digits in one day with the tech-heavy Nasdaq experiencing its worst day ever whilst the Dow Jones Industrial Average had its worst day since the 1987 “Black Monday” market crash. In addition, the S&P 500, an index constructed of the 500 largest companies in America, fell 12%; dragging the index nearly 30% from its record peak set less than a month ago. Since then we have seen violent swings in the market rather than continued falls and even historical safe havens such as gold and bonds have experienced unprecedented volatility.
With the situation in the US and Europe seemingly deteriorating, data from the National Bureau of Statistics shows that the containment measures implemented in China negatively affected every sector of the Chinese economy during the first two months of the year. Retail sales plunged 20.5% during January and February compared to 2019, industrial output was down 13.5%, and fixed asset investment fell by nearly 25%, the decline in industrial production was the sharpest contraction on record.
However, this market fall is different to any others we have seen, this is a seismic, natural disaster that due to government intervention to slow the spread and save lives is causing the downturn, not an over-inflation of prices or a financial systemic failure as that seen in 2008. With every major western government now taking off the gloves in the battle against the virus and to support society, there is a clear expectation all these governments will do what it takes to provide financial support to businesses and individuals most in need and there will be a collective effort to restart the global economy when the threat of the virus has passed. By lowering interest rates to virtually 0% central banks can continue to inject money into governments and onto citizens by purchasing existing government bonds with money they have printed. This is an extreme move to support tens of millions, but the collective western governments simply feel they have no choice.
This approach will likely result in a sharp recovery when the time comes which will be fully supported by all western governments. No doubt this level of borrowing will cause future challenges, but the focus after the danger has subsided will be to restart the beating heart of the global economy. As shown in the chart below every major market crash is followed by a market rally, this one will be no different and it is important clients understand there will be an unprecedented level of global government support to achieve the goal of society returning to normal.
Whilst the short & medium term headlines are concerning, we need to take comfort in the strong actions from the central banks and governments to ensure businesses can continue during the crisis from which they will eventually recover. Although fairly muted at this stage, some of our fund managers have been deploying portions of cash holdings into businesses that they believe are well equipped to withstand the anticipated short term pain and thrive longer term. We will, of course, continue to monitor the situation and provide further updates as necessary.
To support all of our clients during this period of isolation and social distancing, we are now able to complete all meetings via web and teleconferencing software using screen-sharing technology. Our commitment and service to all clients remain the same so please feel free to contact us to discuss our virtual meeting service or if you have any concerns or questions. Although most staff are now working from home, we have maintained staff in the office to continue to process paperwork and applications as normal and we remain contactable during normal working hours. Our thoughts are with all our clients and families during this difficult period and we wish you all a safe passage through this crisis.
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The information contained in this article is intended solely for information purposes only and does not constitute advice. While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article.