I hope you are all well, and managing in what is a difficult situation for us all.
Since my last update on the 17th March, we have witnessed massive state intervention to help prop up the economy mainly through the UK government furlough scheme. At the time of writing the US Congress and Senate have approved a $2 Trillion package to support the economy. To use the phrase from my brother in law – they’ve chucked the kitchen sink at it. Whilst watching CNN last night, they did give the impression that they might have more than one kitchen sink! I believe as a result of these measures Capitalism is put on hold, as the majority of developed countries around the world are propping up employment through these measures until the virus has passed, and the public can return to their jobs and lives. I’m sure you have had plenty of time to read and hear about these matters through the media, it’s very hard to get away from it!
The health of all members of the public are the top priority for all governments, and rightly so. Meaning the economy is taking second stage now (even with the governments support packages), but when the virus passes it will likely be the main focus of the government. The economy and the stock market should always be separated and be talked about in isolation, as they have two different cycles (business and market cycle). When anyone talks about the business cycle, it is the journey from the economy expanding to contracting, which has happened on numerous occasions throughout history. I believe we are heading for recession as the economy is contracting. However, the market cycle tends to lead the business cycle, as the stock market has already made a massive correction and has considered the effects of this virus on the economy. Whilst I do expect more volatility, being in a recession doesn’t necessarily have negative effects on the stock market as it is one step ahead.
As we all know, the situation we find ourselves in is unique, however the stock market has been through these corrections over the last 100 years on a regular basis, and it will again in the future. Usually the cause of these stock market corrections is a complete unknown (Black Swan). We define the good and bad times as Bull and Bear markets. Since 1900 a Bull market has lasted on average 7.9 years whereas a bear market 1.3 years, and since 1900 until 2018, Bull markets have made up a total of 103 years compared with 16 years of Bear markets. The previous Bear markets were all individual one-off events (sound familiar) for example Credit Crunch, Tech Bubble, and Black Monday.
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I believe it is important not to get caught up in the storm that we are currently in, and not to try and control the uncontrollables. Nobody knows how long the virus will be with us, however we do know throughout history the stock market has been through these times before and has always come out strong.
At the risk of sounding like Boris (Let’s get Brexit done and wash hands for 20 seconds), your investments are acting exactly as they should, and how I would expect given the current climate. Please remember:
• Diversification. Your investments are invested in a diverse range of assets. Whilst your investments would have dropped, this diversification has limited the fall.
• Cash reserve. Having a cash reserve means you can access cash should you need it during a market correction.
• Investment time frame. You do not need to realise a loss by withdrawing/accessing your investments now.
• Low costs. Your investments are low (compared to the market), therefore there is less drag on performance or creating larger losses.
On a personal note I feel it is vital that when I email clients, I provide information, confidence and reassurance, so I hope you value my latest update. From May I will be sending out a quarterly newsletter/blog and, like always, I do not wish to reiterate what is in the news, however I will endeavour to continue to provide you additional ad hoc updates where I feel it will provide benefit. If any of my clients need help getting in food supplies or medication, please do not hesitate to contact me.
