Looking back at the month of April 2020
These are indeed unprecedented times and we have seen this reflected in market activity in the last month where global shares had their best month in nearly a decade in April, led by the US where the S&P 500 rebounded.
- The FTSE100 index gained a healthy 4% in April; its second-best month in 10 years.
- The S&P gained 12.7% in April, its best performance since 1987.
- The tech-heavy Nasdaq rose 15.5% in April, its best month since 2000.
- Japan’s Nikkei rose by 6.7%, its best month since 2017.
- The MSCI World Index rose by 10.8% its best month since the index was created in 1986.
The rebound was driven by a combination of expanding stimulus programmes, hopes of progress on vaccines and therapeutics, and news of economies easing their lockdowns. Gilead Science’s drug Remdesivir was given fast-track approval in the US and will be given to patients as early as this week.
Brace for some shock
While April’s rally reflected investors’ optimism, the falls late last week and earlier this week showed that sentiment is still delicate. History also tells us that markets rarely recover in a straight line. It is more common for shares to rebound after a crash, then fall back again to retest their lows, before embarking on a more sustained recovery.
This time it's the same
The next couple of months could be a bumpy ride.
- Our investment partners think the second quarter will see a nadir in economic data and it will be grim. It will reflect the full impact of the lockdowns on economic activity.
- We compiled the chart below that comes out of the US making it one of the only up-to-date economic indicators. Now, bearing in mind that this is focussed soley on US economy, the convention is to how quarterly changes in US GDP on an we have on an annualised basis. This means that the slump in the second quarter will be measured against the second quarter of 2019 when economic activity was relatively robust.
- When we compare the data year on year it is likely to show that the US economy shrank by 40% or more. It helps to perhaps anticipate this coming and recognise it as a test of holding our nerves.
- Nobody disputes the severity of the decline in economic activity. What matters more now is when and how fast the recovery comes. Commonly this is expressed in terms such as V-shaped, U-shaped or even L-shaped. This representation of the path of US real GDP from the US Congressional Budget Office is a reasonable reflection of what most forecasters expect. It shows a sharp recovery in the second half of 2020, followed by a slower recovery during 2021 without quite recapturing the previous level of output.