Market Update

The global equity markets experienced a turbulent week as the coronavirus spread beyond Asia. The FTSE-100 fell by just over 11%, while in the US, the Dow Jones dropped over 12.36%, and the S&P 500 saw its most significant decline since 2008, nearly 11.5%. In comparison, my wealth portfolios (individual client portfolios may vary slightly) performed as follows: Cautious portfolios were down 5.19%, Balanced portfolios down by 8.29%, and Adventurous portfolios down by 9.71%.
The concerns about the virus impacting economic growth also led to a 13.55% drop in the price of Brent oil, falling to $50 per barrel.
Although we acknowledge the seriousness of the human tragedy caused by the coronavirus, from a global equity market perspective, this outbreak is likely to be a temporary concern, similar to previous incidents such as SARS, swine flu, MERS, Zika virus, and Ebola. The fundamental drivers of long-term growth, specifically technology and innovation, remain intact.
Reflecting on past market crises, particularly those of 2011, when higher oil prices, the Fukushima nuclear disaster, and elevated Eurozone interest rates led to a market downturn, we recall the wisdom of economist Paul Romer: "A crisis is a terrible thing to waste." This sentiment rings true today as we believe that this week's market sell-off has been emotionally-driven and, consequently, indiscriminate.
While the coronavirus outbreak is expected to result in reduced consumption and investment, compounded by China's month-long economic standstill, it's important to note that the continued confidence of US consumers (which reached a six-month high this week) suggests that the outbreak might cause a short, sharp shock and possibly a mild recession, rather than a severe and prolonged global downturn. We anticipate the Federal Reserve to act proactively and cut US interest rates at their March meeting, as a preemptive move to prevent a more significant economic downturn.
While we are undoubtedly concerned about the coronavirus spread and the resulting market weakness, we emphasize the importance of maintaining a long-term perspective and resisting knee-jerk reactions. Given the emotionally-driven market sell-off this week, a few positive developments might lead to a swift and robust rebound in global equity markets. We even anticipate the possibility of a V-shaped recovery, similar to what the Chinese equity market experienced after coronavirus cases peaked (though still down, Chinese equities rebounded strongly and now stand well above their initial virus-induced sell-off).
Market uncertainty and volatility are natural occurrences, and at my wealth, we adhere to a long-term approach to investing. Historical data shows that such market shocks, though daunting at the time, often prove to be temporary setbacks.
In light of the current market conditions, we see numerous opportunities for long-term gains. Market panics typically present the best opportunities for investment, and we believe we are at that point, considering the ongoing sell-off and weak market sentiment, which appears to be self-perpetuating.
Additionally, with the tax year end approaching, we want to remind you about your ISA allowance. If you haven't utilized it yet, now is the time to act. The current limit is £20,000, and if you don't use it by April 5, 2020, it will expire. Please reach out to us using the contact details provided in your email to initiate the process.
Looking ahead to the coming week, while economic data may not hold significant weight in emotion-driven markets, key events include Chinese PMI figures (expected to reflect the impact of the virus on their economy), US employment data (including non-farm payrolls, unemployment rate, participation rate, and average earnings), and Eurozone CPI (likely to slow further due to weak oil prices caused by the coronavirus). Stay tuned for further updates and insights.