OCM Wealth Management
The outlook as we move out of lockdown
After starting the year on an optimistic note on trade, central bank stimulus, and improving economic fundamentals, no one could have predicted where the economy would be at this point in the year. As financial markets began to recover from US-China trade turmoil and Brexit brinkmanship, equity markets reached all-time highs in February as the longest bull market in history raged on, aided by dov- ish monetary policy and investor optimism after a period of restrained growth. As the coronavirus outbreak took hold during the first quarter of the
year, investor optimism proved to be short-lived, as the rapid spread of Covid-19 across the globe in the first week of March led to a rapid deterioration in global economic conditions, triggering a sharp selloff in financial markets over the month. While the initial outbreak was predominantly confined to China,
the spread of the coronavirus in countries across the rest of the world escalated quickly over the first quarter of the year. As the number of cas- es in key economies rose, governments adopted draconian lockdown measures to try to curb the spread of the virus, resulting in significant disruption to the global economy and derailing any signs of recovery in economic fundamentals seen earlier in the year. Following a sharp escalation in active cases across the world in early March, markets de- clined over the month, before finding a bottom on 23rd March. At this point, the S&P 500 and FTSE 100 were down 34% and 35% respectively from February’s highs. The pace and magnitude of the selloff fuelled concerns over
structural dislocations in the market, however investor fears were calmed when central banks across the globe stepped in with un- precedented levels of stimulus in an attempt to support markets throughout the pandemic and the resulting period of extreme economic weakness, preventing further decline and stress on the financial system. Tree months on, economic data on a global scale continues to
deteriorate as the impact of the coronavirus-induced lockdowns becomes clear, however markets now appear to be looking past the sharply deteriorating near term economic data to focus on expecta- tions for a recovery. In recent weeks, we have been encouraged by further signs of stabilisation in the number of active Covid-19 cases in key economies and a falling transmission rate across the globe. After weeks of activity-constraining lockdown measures, many countries are taking steps to reopen their economies, fuelling optimism over a gradual pickup in activity in the coming months. At the same time, governments and central banks have reaffirmed their commitments to supporting markets.
34 ALL THINGS BUSINESS
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