Markets have rebounded somewhat after several weeks of declines following continued Coronavirus worries and the oil price drop leaving most major indices 25-30% down.
The effect of Coronavirus is still difficult to quantify but where we have difficult to quantify impact events statistically these are usually a short duration impact to bottom of 3-6 weeks with 8 to 12 weeks to recover. Should the Coronavirus lead to a deeper drop into a long term recessionary environment the nadir could last six months and a drop in equity markets in the region of 40% from their peak – either way there is going to be plenty of chop while markets find their level which they are yet to do despite last week’s positivity.
There is no question growth and earnings will be lower in the coming months, S&P500 is trading at an earnings multiple of around 14 down from 20 a few weeks ago which represents reasonable value and seems too pessimistic given other economic data.
A call to buy or sell the dip is inherently a market timing call, you have to question where is the market mispricing future expectations: yield, growth or risk appetite. It’s probably too early to bottom fish for equities as there is little to suggest markets have found their support level yet. For those who do not believe this will lead to a 2008 type global downturn dipping your toes into the water could make some sense at a point in the next week or two, and there are some extremely attractive options you can buy now to take advantage of the recovery when (not if) it arrives.
Remember these 5 key points:
- Don’t constantly check your account, you didn’t set these plans up with a 3 week investment horizon but for long term growth. Focus on your long term goals.
- Don’t try and catch a falling knife, it never ends well.
- Just because the FTSE 100 has dropped 25% it does not mean your portfolio has dropped 25% – this is why Chase Buchanan have a range of asset classes in the portfolio and highlights the importance of diversity to protect against these kind of shocks.
- Know it’s not different this time – world events are unique and that’s why they can be scary as markets find their comfort level.
- Chase Buchanan are here to worry about this so you don’t have to. Get in touch with us and we can let you know if you need to make any adjustments to your portfolios, when the time is right. We have been through these periods before (and will again!).
In the meantime, stay safe. Because without health, wealth is worthless.
Chase Buchanan is a highly regulated wealth management company, specialising in providing global finance solutions for those with a global lifestyle.