Market Update March 2020: Stocks Market Suffer Worst Quarter Since 1987
With continued market turbulence, we feel it is important to keep you updated with some of the economic news and developments that are driving the market volatility during these challenging times.
With most countries still enforcing strict lock downs, there are some early signs of a reduction of new infections in Italy and other European countries. Governments have now started to distribute monies to support society and businesses and China has talked about additional stimulus to ensure economic stability.
Today marks the start of Q2 and therefore we are expecting to see large swathes of negative data for Q1 after most of Europe and US were in lock down or reduced output for large parts of March. This expected slowdown and global recession in Q1 & Q2 is already figured into current market prices and therefore our thoughts turn to projections for the rest of the year. The current projections of US GDP from the investment banks below shows a record sharp reduction in GDP for Q2 followed by a strong rebound in Q3 and Q4.
Over the past week, numbers illustrating the impact of Covid-19 on the American economy were released as an unprecedented number of Americans filed for unemployment benefit. It was reported that over 3 million Americans filed a claim for unemployment benefits last week, a record high that evidences the damage to the US economy from the coronavirus shutdown. According to data released by the labour department last Thursday, claims rose to 3.3m from 282,000 the previous week. This rise in unemployment marked the largest single-week rise in unemployment claims since the department began publishing records in 1967. The previous largest jump in unemployment claims came in October 1982 when an additional 695,000 claims were made compared to the previous week due to recessionary pressures.
Markets have again fallen today after the White House projects between 100,000 – 240,000 coronavirus deaths in the US in the coming months.
Within the UK, the region’s largest lenders have bowed to pressure from Britain’s top financial regulator and halted their dividends after they were warned against paying out billions of pounds to shareholders during the coronavirus pandemic. In a series of co-ordinated statements yesterday evening, Lloyds, RBS, Barclays, HSBC, Santander and Standard Chartered said they would cancel their final dividends for 2019 and refrain from setting cash aside for investor pay-outs this year. They also pledged not to carry out any share buybacks. Their announcements were made as the Prudential Regulation Authority, the supervisory arm of the Bank of England, published a statement welcoming the dividend cancellations. The regulator also said it “expects” the banks and Nationwide, the building society, to refrain from paying any cash bonuses to senior staff and signalled they should stop setting money aside for variable pay during the “coming months”.
Data from China briefly buoyed markets as Chinese manufacturing activity rebounded strongly in March, signalling that the world’s second-largest economy is restarting just as it faces a growing threat from slumping external demand. For manufacturing, the official purchasing managers’ index in China rose to 52.0 in March, according to data released by the National Bureau of Statistics on Tuesday. That’s up from a record low of 35.7 in February and above the 50 mark which signals improving conditions.
While the rise indicates better sentiment at Chinese factories, output remains lower than normal. The survey asks firms to state how business was compared to the previous month, so the data just shows that Chinese companies think things have improved from the sharpest contraction since at least 2005, when the series began.
With market reaction to positive and negative news remaining volatile; we feel that it is more important than ever to maintain our long-term positioning as opposed to trying to second guess the markets next move. We will therefore continue to focus on our longer-term view of asset classes as we monitor the ever-evolving economic impact of covid-19.
We know the economic picture in April and May will be dire, although it is important to understand this will already be figured into current market prices. We are going to get a constant stream of negative news in the coming weeks and months, but it is important to stay disciplined and focussed on long term investment plans for when the recovery does start in the global economy. Current projections by investment banks are showing a sharp recovery in Q3, although we appreciate this could be better or worse than projected. Being prepared for further bad news is important to ensure investors do not fall into the behavioural trap of selling at the worst possible time.
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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.
