For months governments, the media and investors wondered what shape any economic recovery would take. Now the question is why some financial markets bounce back so quickly?
Although some markets are still short of pre-Covid levels, most have now recovered much of those losses despite a continued gloomy outlook on the jobs front.
Some, such as the S&P 500 Index in the USA, have recently achieved record highs. Even the New York Times asks why?
The recovery of stocks is staggering. At its worse, the S&P 500 shed around one third of its value. By late March, many financial observers were predicting one of the most severe recessions and economic downturns in decades.
Now, although there is widespread concern about the coronavirus pandemic around the world, this is one stock market index that is ploughing on regardless.
What is special about the S&P?
Seeing stock prices rise shouldn’t be a concern. There are always reasons for price rises, usually based on information and evidence that gives investors confidence.
Although some investors are prepared to hold funds in gold and even cash, most need somewhere to get their money working. That seems to be the case with the S&P and some other markets.
The S&P has other factors in its favour. The tech giants like Apple, Amazon and Facebook are at the core of recent growth. The pandemic has changed behaviours at home and work, and for the technology companies that’s been great news.
There has been more home working, more video conferencing and an increased consumption of online content.
Elsewhere, the Federal Reserve has worked hard to keep the US economy moving despite the severe lockdown of April and May.
Analysts and investors have taken a longer term view, anticipating unity across the US Congress and more financial support for individuals and companies alike.
Are other financial markets recovering?
While indexes such as the FTSE, DAX and NIKKEI are also on track to reach previous highs, the rebound has been more subtle than that experienced in the US.
The UK government, like other administrations around the world, has implemented a range of measures to retain jobs, boost investment and protect household incomes.
The early signs in June and July are promising, but observers await the next blocks of data before making further predictions about the chances of a full recovery within the next year.
What continues to drive the US markets and others is the ongoing hope of a vaccine for Covid-19. If and, hopefully, when that arrives, there would surely be unbridled investment confidence across the globe.
Investing over the long term
What the pandemic has highlighted is the importance of investing over the long term. People shifting funds to cash in April and May will almost certainly have missed out on the gains seen in June and July.
Crucially, they will have consolidated losses.
In normal circumstances, investors would have hoped to see several percentage points gained over six months. In 2020 that was never realistic, especially after the sheer extent of the coronavirus damage became clear.
However, those who held their nerve and listened to long-standing advice about staying invested will now be on track to make gains if the current momentum is sustained.
Level-headed investment advice
We always encourage clients to look at the big picture. Chasing short-term gains and avoiding losses by “playing” the markets rarely ends well.
It’s about assessing what a client needs, what they hope to achieve and what level of risk they are comfortable with.
We are here to support you. For us, it’s all about putting you at ease so that you can make the best decisions for you and your family.
Please call us on 0808 1234 321 or email firstname.lastname@example.org to chat about how best to invest over the long term.
Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions as you put important things in place for you and your family.
* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.