The Long and Winding Road – 50 years ago the Beatles had a world-wide hit with this song and who knew that so many years later it remains apt – but this time for our financial markets.
The covid-19 crisis has sent financial markets on an unprecedented roller coaster ride. The consequences of the containment measures will have a long-lasting effect both in society and financial markets for a long time to come. Quantifying the unknown is impossible, and we are therefore of the view that the path back for financial markets and economies will be a long and winding road.
Words cannot describe what we witnessed in financial markets over the past few weeks. We have seen the fastest slide in stock markets in decades. The wave of enormous consecutive daily movements of this magnitude was last witnessed during the Great Depression. We also witnessed one of the strongest countermoves in history as the US stock market gained almost 20 percent in just three days. This shows how violently the corona crisis has jolted the world. There are hardly any historical parallels for this type of volatility and investors and asset managers alike have been left very disoriented.
That said, scenarios can be useful in developing and reviewing investment strategies.
Our baseline scenario is that this crisis will leave very deep ruts in the economic landscape. The return to social and economic normality will be slow and gradual aka a long and winding road.
According to estimates companies will earn about a third less profit this year than in 2019. Equity markets have already priced in this decline in earnings. Past market corrections, however, have typically unfolded in several waves. Thus far, we have only experienced the first wave and boy it was a tidal wave of tsunami proportions. Only once the potential effect on the global supply chain and resultant economic consequences are more accurately determined, can an assessment be made of the path of the long and winding road. Certain stocks and sectors will prosper, whilst others will be in for a period of major upheaval, consolidation and transition.
The Activ8 philosophy has always been on active management of client funds. We constantly monitor and adjust client portfolios to ensure optimal positioning, so the portfolio remains aligned to our client’s objectives, and circumstances. We invite open engagement with clients and take this opportunity to welcome new clients into our family.
Through this volatile and tumultuous time, an independent review of your portfolio is crucial. As the saying goes, two heads are better than one. If you have not had the pleasure of being one of our satisfied clients, we are offering you a free review of your existing portfolios. The offer comes with no strings attached and no obligations, but we assure you, that you will be better off after it. We encourage you to take the time to discover the Activ8 experience.
