The Bank of England says Britain is facing the worst slump in 300years. Just over two months ago, stock markets around the world fell to their lowest since the global financial crisis. Yet, late last month, markets have risen 20-30% from their lowest point. What is happening?
My assessment is as follows:
- Most markets are propped up by government funding. Countries all around the world have injected trillions of dollars into their economy as relief measures and boosters to keep businesses going.
- The rally is bolstered by optimistic news of economies starting to lift lockdown measures.
- Those who have experienced the global financial crisis know that prices will rise again eventually. Hence, when they have cash on hand, they buy when things are Low now.
But don’t forget that most market recoveries happen in a “W” manner. In other words, there will likely be a drop again before full recovery. And we probably have not seen the worst yet – because earnings reported thus far are based on half a quarter of covid-19 impact. The full impact will be felt in Q2.
Meanwhile, here’s an update to the performance of REITS so far. Similarly, most REITS have only experienced half a quarter of impact in Q1. The full impact will be felt in Q2.