AFM No Comments

Market update – Friday 22 May 2020

I wanted to get in touch with you now we have moved into the next phase of the battle against coronavirus. We have seen positive data this week showing that mortalities from Covid-19 are reducing across the globe and lockdowns easing in many countries.

Much news has been released this week and there have been some economic positives which I have rounded up below.

Earlier in the week markets saw a strong surge as Moderna’s early stage vaccination trial success boosted sentiment. Risk sentiment was also buoyed by tentative signs of European solidarity as France and Germany committed to an EU Recovery Fund.

Given how well the market took the news that Remdesevir may help against the symptoms of COVID-19, movements towards a vaccine were likely to lead to substantial gains. Not only is this a positive for the specific vaccine that Moderna is working on but also suggests that COVID-19 will be a virus that can be vaccinated against. This is relief for policymakers as many virus’s cannot be contained by vaccination. Moderna’s progress helps to reduce one of the big market risks, that future waves of COVID-19 would periodically shut down parts of the global economy. Markets will be watching progress towards a vaccine, and timelines for eventual manufacture.

The European Commission revealed it will outline a bold recovery plan to tackle the consequences of the pandemic, which could exceed €1trn in the form of grants and loans to hard hit regions.

The plans for the EU’s ‘recovery  instrument’, which are expected to be unveiled next Wednesday (27 May), are to be closely linked to the EU’s budget plans and is likely to include the creation of a recovery and resilience facility, which will concentrate on investments and structural reforms.

The initial proposal from France and  Germany signalled a step change in  the eurozone’s attitude to sharing debt, by providing grants to harder hit regions, such as Italy and Spain, and these proposals pushed government bond yields from southern European countries lower, and the euro higher.

Over in the US, there are hopes that the jobs market has now bottomed after US initial jobless claims came in as expected and that the bulk of jobs to be lost have already been lost.  The US manufacturing PMI also showed some mild improvement as did the European and UK numbers.

Investment focus: Volatility 

Ups and downs are a natural part of investing but when the graphs get spiky, most of us get caught in the headlights. We know good investing is about being able to stay composed no matter what is happening but that takes a rational mind.

Why volatility hurts

We are generally able to recognise in ourselves two main emotional responses to market movements: worry, as a market rises; and panic, as it falls. Speed these gyrations up and even the most placid of us can start to feel uneasy.

Research into this has concluded that we experience the pain of a loss twice as much as the joy of a gain, so the distress we feel at the thought of the former means we’re only human.

However, the best investors neither celebrate nor commiserate too much or for too long. Instead, they understand that volatility is the price we pay for the long-term outperformance of equities over cash. Keeping that long-term view at the front of your mind should help you look at short-term fluctuations as nothing more than mere blips on a much longer journey.

“Uncertainty is actually the friend of the buyer of long-term values.”  – Warren Buffett

Adequately diversifying your portfolio with a range of assets is a basic principle of long-term investing. Absolute truly believe in the benefits of diversification and have ensured the investment strategy we have recommended to you uses this principle.

Bull and Bear Markets

This table shows the highs and lows of UK bull and bear markets from the 1920s to the present day and puts this period of uncertainty into perspective:

Source: Money Observer May 2020/Timelineapp Tech 

Bull or Bear Start Date End Date Depth Duration
Bull Jan-26 Oct-29 47% 3yr 10 months
Bear Nov-29 Jul-32 -45% 2yr 9 months
Bull Aug-32 Jan-37 142% 4yr 6 months
Bear Feb-37 Aug-40 -42% 3yr 7 months
Bull Sep-40 Nov-51 341% 11yr 3 months
Bear Dec-51 Jul-52 -22% 8 months
Bull Aug-52 Aug-57 160% 5yr 1 month
Bear Sep-57 Mar-58 -20% 7 months
Bull Apr-58 May-61 168% 3yr 2 months
Bear Jun-61 Aug-62 -21% 1yr 3 months
Bull Sep-62 Feb-69 185% 6yr 6 months
Bear Mar-69 Jun-70 -30% 1yr 4 months
Bull Jul-70 May-72 103% 1yr 11 months
Bear Jun-72 Dec-74 -67% 2yr 7 months
Bull Jan-75 Oct-87 3514% 12yr 10 months
Bear Nov-87 Dec-87 -34% 2 months
Bull Jan-88 Sep-00 571% 12yr 9 months
Bear Oct-00 Feb-03 -43% 2yr 5 months
Bull Mar-03 Nov-07 135% 4yr 9 months
Bear Dec-07 Mar-09 -41% 1yr 4 months
Bull Apr-09 Dec-19 212% 10yr 9 months
  • Average bull duration 7 years
  • Average bull ‘height’ 507.1%
  • Average bear duration: 1 year and 8 months
  • Average bear ‘depth’ -36.5%

As previous, our message remains the same……sit tight and await the recovery, it will come.

Finally, please copy the below text into your browser to hear the latest thoughts from Tatton Investment Manager, Lothar Mentel, which I thought may be of interest.

We hope you are well and as always, if you wish to discuss any aspect of your investments then do not hesitate to get in touch.

To contact us by telephone, please call:

Ashford office: 01233 646 666 

Hastings office: 01424 457 080 

Kind regards,
Mark Eaton