I hope you are all keeping well as we come out of lockdown - fingers crossed the government are correct in their hope that we will see a return to normal by the end of the year.
In this month’s update, I thought I would look into the future and predict the investment outlook for the next few months. To recap, we saw the global markets fall dramatically through March as the pandemic really took hold around the world. As we have seen in the UK and internationally, governments and central banks have been very quick to act in an attempt to ease the impact Covid-19 has had on the global economies. This has had a positive effect on the markets which have recovered some of the losses that they saw during March. However, I think we have now entered a ‘wait and see’ period. There is much uncertainty and nervousness around potential second waves; whether the stimulus packages will work; and indeed, the increasing number of cases in the US.
One thing we can say with some certainty is that we are about to enter a recession. However, the length and severity of this recession is unknown, as the economic repercussions are still to be fully understood. As lockdown measures are eased, the UK government will be hoping the reopening of the economy will see a quick recovery. Nevertheless, recent figures illustrate an eye-watering drop in GDP, and I think it will take some time to recover, and certainly won’t rise as quickly as it has fallen.
With the various stimulus packages that are being introduced, this is leading to the largest rise in government debt levels we’ve seen since World War II. At some point, how this debt will be repaid will need to be addressed, but that is very much an action for the future.
In addition to global pandemic, the US Presidential election is also on the horizon. As mentioned in a previous blog, prior to the pandemic, I thought that President Trump would have based his campaign on how well he had managed the economy. For this reason, he will require a swift recovery and further gains in the US stock market in the coming months. This is probably why he has been so keen to reopen the US economy - perhaps earlier than it should have.
I believe the markets could be best described as being pessimistic at the moment as they wait to see how the next few months unfold. For this reason, there could still be short-term volatility as good or bad news is reported. I certainly don’t think the economy will return to its original position as quickly as the down turn took effect.
As always, for more information and advice regarding your investments, please do not hesitate to get in contact with us. Hopefully, it won’t be much longer before we can resume as ‘normal’ and see you again.
Richard Brazier – Director – Hanover Financial Management Limited