I suggested in my last blog that unlocking the economy would be the biggest of several gambles the government has been forced to take with this awful pandemic. If the gamble fails, a second spike emerges and a second lockdown were to become necessary, the damage would be far worse than the economy has sustained thus far. There is just no way the government could repeat the emergency cash measures taken so far to anything like the same degree, so we would risk economic decimation and an increase in unemployment, a figure that is already destined to look very bad, that harkens back to the dark days of the 1970’s. Recent days, and the response to the 4th July unlocking of many areas of the economy, do not augur well.
Many of my age group regard the teens and twenty something generation as irresponsible wannabies with a disproportionate sense of entitlement. The thousands that mobbed the beaches, celebrated at Anfield and rampaged through Brixton and Kensal Green last week did nothing to disprove such considerations and did a disservice to the majority of their generation who, I am sure, were as concerned by their antics as everyone else. They couldn’t even wait for the 4th July. Boris hardly had time to step away from his lectern before they were slapping on the factor 30 and packing up the motor. Animals caged for three months would probably act more responsibly upon their release and, lets face it, for 90 odd percent of us it has been a restriction of our freedoms rather than incarceration. We must hope that things calm down and common sense prevails. Either that or the typical British weather makes a comeback and drives them all home.
Through all this the stock market has displayed a resilience that instils pleasure and caution in equal measure. It is looking through the current problems and is ignoring the possibility of a second spike. Perhaps the summer heat will suppress the virus. Perhaps action will be taken to prevent beach scenes such as we have seen during recent days. Perhaps, perhaps, perhaps.
Let’s assume all the perhaps’s work and the market continues its solid performance through the summer months. I still can’t escape the feeling that a day of reckoning awaits. As I suggested last month, even with a trouble-free unlocking, the final quarter of 2020 is going to see some appalling figures reported from corporate UK. They will show in stark relief in many cases, the difference between the value the stock market has been putting on a company and the valuation one might realistically expect for a business shrunken by the ravages of coronavirus. In many cases, not only will those businesses be shrunken but the cost of doing business, complying with new rules and hygiene regulations, will have increased substantially. And don’t forget – a smaller business needs a smaller workforce.
A further worry is the US election in November. Just a few months ago Trump looked a shoe–in but his handling of the pandemic has been gobsmackingly bad at times and his popularity has taken a sizeable hit as a consequence. Love him or hate him, the US stock market is likely to take a much dimmer view of a Democrat in the Oval Office and where the US market heads, the world often follows.
So how does that leave us? Well I’m sorry to sound boring but in much the same place as in last month’s blog, I feel. Having stayed invested through the pandemic we are prepared to enjoy the current market firmness, whilst retaining sensible cash levels in case of second spikes. However, as autumn approaches we anticipate increasing those cash levels. It is possible some real opportunities will avail themselves this winter.
Russell Dobbs FCSI
Chartered Wealth Manager