“In financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility”Benjamin Graham
Since the beginning of March, the Coronavirus pandemic has advanced significantly, for both financial markets and society. In a matter of weeks, the virus is now impacting individuals across most of the world rather than being something just affecting a select few countries. Other than the clear economic impact of the spread, this appeared to change investors’ view of the outbreak once they could see the potential disruption with their own eyes. Indeed, the most significant market falls coincided with rising outbreaks in New York and London, the two largest financial centres in the world.
However, it is important to consider that financial markets are forward-looking, and although much of the Western world is now enacting full containment measures, there are glimmers of hope already. The timescales are important and with the rate of change in government policy and market movements, it is easy to lose perspective. The city of Wuhan in China where the outbreak originated, was locked down on 23rd January, two months ago. There are now officially no new reported domestic cases anywhere in China, and much of the economy is well on its way to recovery, although, there is a risk that the virus will re-emerge. While it would be unwise to draw direct comparisons, if Italy and other impacted countries were to follow a similar path, markets would likely experience a significant bounce, even before the virus was fully “defeated”. For long term investors, it is important not to miss such events.
The global government and central bank response to the pandemic has also been colossal. The promise of unlimited QE from the Federal Reserve, interest rate cuts and $3-4bn of fiscal stimulus from US and European economies should support demand and would ignite a recovery if the virus is overcome in the short to medium term. Investors were initially unimpressed by the actions; however, with political barriers overcome in the US, it appears that the significant support from the US government was enough to improve investor sentiment. Indeed, news of the $2tn stimulus led to the largest daily rise in US markets since 2008, with a rally of over 9%.
While we do believe that some changes can be made to portfolios following these extreme and rapid market movements, wholesale changes in an attempt to time turning points appears increasingly challenging.