Extraordinary Times

As investors we are living in extraordinary times. US stocks surged on Friday with the Dow Jones rising by 1,985 points, its biggest ever one day points gain. In percentage terms it was pretty impressive too, climbing 9.4%. The index spiked due to Trump promising stronger government action to deal with the Coronavirus in the US. Normally US markets are trend setters for the rest of the world but not so this morning. Overnight the Hang Seng fell 4.03% and Japan’s Nikkei 225 dropped 2.46% (Source: BBC News. This link is worth bookmarking for market watchers   https://www.bbc.co.uk/news/business/market-data ). Europe has opened sharply lower. As I write at just before 9.00 a.m. the FTSE 100 is down just over 7.5% dipping below the 5,000 level, something not seen for a long time. European bourses have fallen further. Despite co-ordinated action by governments and central banks investors are worried that there is very little ammunition left to combat the impact of the pandemic on the global economy.

Whilst I am sure most individual investors are holding tight, large number of institutional investors must be selling equities at already depressed prices and driving prices lower. I am not sure what they think that will achieve unless they reckon it is a case of selling now or selling later at even lower prices. Do they know something we don’t?

It is clear the global economy will slow sharply. It is now inevitable with the lockdowns in many countries some sectors will collapse. It doesn’t look good for airlines nor the travel and leisure industries, nor their suppliers. Business failures and redundancies are inevitable. Those companies with strong balance sheets and large cash piles should be OK. It will be a case of survival of the fittest. Large scale unemployment will mean many will be unable to maintain mortgage payments and this will impact the banks. If they come under severe financial stress that would become a systemic risk. In conclusion a global recession now looks inevitable. On the positive side modern technology enables many people to work from home whilst orders and demand will be delayed. Not all will be cancelled. A post crisis surge could follow although inevitable permanent damage will means the global economy will not recover to its pre-crisis level.

These are extraordinary times requiring investors to hold their nerve. Some may even be brave enough to buck the trend by investing some cash into the market to buy at very low prices. No-one is talking about the ISA season at the moment. Perhaps they should.

The content of this blog is based on my own understanding of global stock markets.  It reflects my personal views and is intended as general investment information only.  Nothing in this article should be construed as personal investment advice for example to invest cash tactically or use your ISA allowance. You should seek individual advice based on your own financial circumstances before making investment decisions.