Last week I warned that we might start to see the gloomy headlines about the dreaded ‘Recession’ word. Sure enough, on Wednesday this week, we heard both the UK Chancellor and the US Federal Reserve Chairman broadcast their fears of a very deep recession.
The predictions are eye-watering. The January to March Gross Domestic Product (GDP) number sunk by around 5% when both countries were only truly affected for the last month of this period. It doesn’t therefore take much of an ‘expert’ to multiply this number by at least three for the period of April to June. It seems that we are currently in the eye of a storm.
Markets are troubled by this. However, there is plenty of positive data to show that the likely ‘bounce back’ once our economies reopen in earnest – will be equally remarkable. This is why so many investors are heading into the markets with a long term view. One well known investment platform announced that it has received over £6 billion in new investments from its clients this year to date.
This really is the most remarkable ‘crisis’ of our time, offering potentially terrifying short term negativity with incredible upside recovery to follow.
However, there is another issue that has unfolded over the past few days that concerns me.
At the start of this crisis, we could see politicians behaving in a united way. The usual ‘blame game’ and partisan politics was avoided by opposition and governing parties in both the UK and the US.
This has been the week I feared, where party politics has started to take priority over the crisis. In the UK we have seen devolved governments and opposition leaders lambasting an apparently disorganised government.
In the US, the Democrats have made out the Republicans failings – pointing to the 30 million unemployed, massive queues for food banks and awful levels of hardship; whilst requesting that the Republicans agree another huge raft of financial stimulus to help Americans.
Unsurprisingly, the Republican position is hardening. They appear to have considerable support from many states who want to reopen their economies in order to stop the hardship – rather than continue to be ‘hunkered down on relief payments’.
In the meantime, the US stock markets are tumbling because they are losing faith that they will receive the next stimulus package – we call this ‘Taper Tantrums’ and we saw it back in 2012.
US politicians have a remarkable appetite for brinkmanship. Cast your mind back to the times under the Obama administration when public sector workers went unpaid for days if not weeks – because of disagreement about budget deficits at a political level.
When American markets fall – so does the rest of the world.
I personally admire America for their positive and determined attitude – and I am convinced that they will be one of the first nations out of recession. However, it is highly likely that they will continue to play a political game of chicken over the coming months.
Add into the mix a Presidential election at the end of this year and the increase in hostility between the US and China – and it is fair to expect a lot of market volatility.
So what does this all mean for our client portfolios? Should we just give up and go home?
Our client model portfolios are now all actually in positive territory over one year between 0% (for our highest risk) and 2.79% (for our ethical lowest risk) at the 14th of May according to Financial Express. This is vs. a FTSE 100 Tracker that was down by -14.20% over the same period. Quite a staggering achievement given all that has happened in one year between Brexit, General Elections, Trade Wars and a Global Pandemic. In the chart you can see a lot of coloured lines all bunched together – returning to (or above) the 0% line. The yellow coloured line underneath them all is the FTSE 100 Tracker. (Apologies for the small image – let me know if you would like a larger copy sent).
Obviously the past is not always a guide to the future and our individual client portfolios will vary slightly in performance to the models.
However, our model portfolio performances tell us that this crisis has caused a huge divergence in stock values and careful management can produce quite different results to the news headlines. If you look under the surface of markets, you will see many stocks falling heavily whilst technology stocks such as Amazon and Netflix rocket upwards. There has never been a more compelling time for active fund management, diligence and monitoring – which is good because we rather enjoy that stuff!
I genuinely believe that we are in for a very bumpy ride over the next few weeks whilst markets try to adjust to political fallout and recession headlines.
However, let’s consider some positive news which will have an impact on markets in a little while.
Oil prices are stabilising, many versions of a CV19 vaccine are coming along at pace, Antibody testing kits are finally getting the green light and have been termed a ‘game changer’ by our government on Thursday this week.
McDonalds opened up just 15 of its takeaways in the South East of England yesterday, only to find its online delivery system completely crashed due to an insane amount of orders from the public!
Then we hear that they are even back to filming ‘East Enders’ in a few weeks’ time!
Trust me, it’s going to get worse before it gets better – but we have all the experience, diligence and determination to come through this in good order and to see our client portfolios make a handsome profit in time.
As always, we are here for you 100%, anything you need – just ask. My very best wishes until next week. Darren