To describe 2020 as a roller coaster year seems like a serious understatement looking back at whats happened so far and we are not yet half way through the year. We had an encouraging start with markets rising through January and February. This was followed by the sharpest market correction in history which was in turn followed by weeks of steady recovery. As of last week, the US and a number of other markets had wiped out all of the losses suffered in March.
However, it always seemed to us that this recovery was without solid foundations and that there was a clear disconnect between the markets and the medium term economic fundamentals. And of course the recovery was supported by what Governments were doing in providing very substantial levels of financial wherewithal to the markets – when attempting to build a picture of where markets are heading over the coming months, the continued purchasing activity of Central Banks is clearly a complicating factor.
And then of course we cannot forget that this is an election year in the US. And while the outcome is very much in the balance, it is clear that Trump is under some pressure which for investors is a double cause for concern. Firstly, markets do not generally respond well to the prospect of a Republican defeat so, while the current political backdrop feels unique in many ways, Trump losing is unlikely to be good news for investors. And secondly, a cornered Trump will almost certainly be an unpredictable animal who may be tempted to experiment with extreme measures within the domestic economy and in international trade with very uncertain outcomes.
And on top of all of this we have Covid 19. While markets seemed willing to overlook 2020 and to effectively ignore financial outcomes for companies, no matter how bad they turned out to be. This latest bout of volatility may perhaps be suggesting that its now dawning on stock markets that the effects of the shutdown will stretch well beyond the current year.
We remain of the view that markets will have a very unsettled Summer and that another downward correction can still not be ruled out. Against this backdrop, our emphasis on phasing new investment into the markets continues. And we are also of the view that increasing portfolio holdings in both bonds and gold could be very sensible moves for clients at this point in the cycle.
However, cash is not a medium or longer term option, particularly with the inevitability of negative interest rates being applied on all Irish bank accounts in the near future. For pension funds and other savings vehicles, the necessity and value of seeking competent investment advice has never been stronger.
The table below shows the year to date performance of major markets in euro terms:
Year to Date 2020 (in euro terms)
US
-5.4%*
UK
-22.3%*
Europe
-10.4%*
Japan
-4.6%*
Ireland
-17.3%*
China
-6.7%*
* Source: Financial Express Analytics
We’re here to help. If you have any queries on market volatility – or simply want to chat about your investment goals – contact us on 01 237 5500 / justask@harvestfinancial.ie
This marketing material has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and;or capacity for loss of any particular person. It should not be relied upon to make investment decisions.
Warning: Such forecasts are not a reliable indicator of future performance.
