WEEKLY COMMENT: SHOULD INVESTORS CHEER LAST WEEK’S STOCK MARKET RALLY?

Weekly podcast: Markets Uncut

As banks come under pressure to cancel dividends, does this point to wider problems in the financial sector? Plus Richard Carter on upcoming data this week and Will Reid, ex-submariner, on how to cope with the effects of being quarantined at home.

Market comment – Alan McIntosh, Chief Investment Strategist

After suffering substantial falls over the past couple of months, global stock markets had their best week since the dark days of the global financial crisis in 2008. Indeed, the oldest US stock market index had its best three day performance (+21%) since 1933.

The main reasons behind this were twofold. First, central banks have gone further than they did during the last crisis by promising unlimited support for financial markets. Second, governments around the world have pledged huge fiscal support for their economies during what is an almost unprecedented period of disruption. Are we to believe therefore that markets have found their support level?

While this is certainly possible, the period of extreme volatility we have witnessed may not be over quite yet. Powerful rallies are frequent in bear periods (i.e. market falls) as investors respond to better news – in this case, the aforementioned financial and economic support packages recently announced.

Nevertheless, until we see a levelling out of new coronavirus cases, it is difficult to put a timescale on the period of lockdown and subsequent economic impact. Although the number of new incidences has risen sharply, there is some more comforting evidence that the rate of growth of new cases in heavily impacted places such as Italy is beginning to moderate. At this juncture, however, it is just too early to say that markets have fully priced in the full implications of this crisis. What we do know, though, as evidenced by the sharp rise in shares last week, is that when markets start to recover, prices move very quickly indeed.

Written by

William Howlett
Equity Research Analyst
Alan McIntosh
Chief Investment Strategist
Richard Carter
Head of Fixed Interest Research
Sebastian Scott
Investment writer
William Reid
Head of Charities

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