According to Morgan Stanley, the stock market is “dislocated from reality” and looking at how far they have rebounded since the depths of Corona-virus this statement is not really surprising. The S&P (an American index) has rebounded more than 50% since the March lows and has actually now hit an all-time high today (18/08/2020)! The FTSE 100 is also up well over 20% since March showing just how far the rebound has been. The problem is that, the reinvestment of dividends is key to long-term investors and with many companies slashing their payments to shareholders what has driven this surge?
Markets can be fickle places and in the face of a pandemic (the likes of which have not been felt or experienced by anyone trading today), the panic sent stock markets plummeting. Think “herd mentality” meaning when a competitor starts selling, you may react the same way (thinking they know why) ensuring a self-fulfilling prophecy. Governments on the whole reacted quickly and determinedly and whilst the UK economy plunged by over 20% for example the general public have quickly returned to “buying things” and we now look forward to a UK GDP bounce in the region of over 7%.
Whilst the UK is in a recession, this will be extremely short-lived (at-least for now) and in the following quarterly economic cycle we are expecting this to be assigned to the history books. Whether there is more trouble to come will now depend on the how fast consumers begin consuming again and whether the winter brings another “Covid blow” to the economy! Remember, we follow all markets daily and will not hesitate to make further recommendations to our clients to give them absolute peace of mind. Contact your experts today and ensure your very own Financial Fortress!