Will Rising COVID-19 Cases Result In Another Market Crash?
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It’s difficult in July 2020 to tell exactly whether the world is moving closer towards “defeating” COVID-19 and what impact this might have on equity markets. European countries – including the UK – are re-opening their borders and businesses, yet many nations seem to still be battling rising cases of the virus. At the time of writing, for instance, India has recently overtaken Russia to stand as the country with the third-highest number of cases (697,413). The U.S., moreover, continues to see a daily increase with states such as Arizona, Florida and Texas witnessing some of their highest numbers on record.
Should investors be concerned and what implications are there for global markets in the near feature? This article offers some reflections on these questions, which we hope you find useful. If you would like to discuss any of these matters or discuss your own financial plan with us please get in touch to arrange a no-obligation financial consultation, at our expense:
“Second Wave” or not?
The “first wave” of COVID-19 resulted in a national UK lockdown in March 2020 which continues to have a huge impact on the economy, markets and household finances. So it is completely understandable that citizens, politicians and investors want to know whether a “second wave” is likely and what impact that might have on equities, jobs and income levels.
As pubs, restaurants and cafes in the UK re-open in July 2020, the answer to that question is still uncertain. Many in the media and the Independent SAGE (Scientific Advisory Group for Emergencies) forewarned that such a lifting in restrictions would spark a second wave, yet this has not materialised. Some have argued that this is evidence of “herd immunity” in the UK population (which would prohibit a second wave). However, this is unlikely since studies suggest that just 1-10% of people have antibodies to the virus. Other possible explanations for no second wave at this time might be more people spending time outside in the summer weather, where the virus is more exposed to breezes sweeping it away – and sunlight.
V or U-shaped recovery?
The big question for investors, of course, is whether the UK is now on course to recovery – and, if so, what form this might take. As many will have doubtlessly noticed, markets took a big hit in early 2020 as COVID-19 swept across the globe. In March, global stocks took a downturn of at least 30% in most G20 nations, and markets have largely, steadily been back on the rise in the UK, U.S. and Europe since. At this point, commentators are talking about whether the economy in the UK will be “V-shaped” or “U-shaped” – which will have a big impact on stock performance.
In the former scenario, the economy “bounces back” quickly and largely returns to its upward trajectory seen before the pandemic. Within such conditions, global equity could return to the 11-year bull run seen between the 2009 Financial Crisis and the start of 2020. A “U-shaped” recovery, however, there would not be a sharp bounce back – but rather a longer period of economic damage, possibly over years, before the economy (and markets) return to the kinds of levels seen before the pandemic.
As always, however, economists cannot agree on the outlook at the present time. Yet investors should take encouragement from the currency trajectory in July 2020. International air travel has now largely been re-opened here in the UK, allowing sectors such as hospitality and aviation (which were hit hardest during the lockdown) to start bringing in customers again over the summer holidays. Markets are likely to remain volatile in the near future as certain areas of the UK announce localised outbreaks (e.g. Leicester) and the stock markets digest the news. Here, it will be important for investors to remain calm and consult their financial advisers about how to keep a long-term investment view.
Of course, financial advisers and investors will want to watch events in the U.S. closely, particularly if American stock markets are affected by consumers who are less willing to spend. The presidential election in November 2020 will also be important, especially with regards to how the winning candidate approaches the U.S.-China trade war going forwards. A Democrat win, moreover, could result in new U.S. domestic policies and laws which affect the taxation of equities – and, therefore, the behaviour of stock markets.
As you can see, trying to predict the near future of global stock markets is an impossible task, even for the most experienced investor! There are many uncertainties and variables at play, all of the time. This should not lead clients to be ignorant of what’s going on in the world, yet it should help serve as an important reminder to stay diversified and committed to the long haul.
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense: