Market Update – 05 May 2020

This week we celebrate VE Day, 8 May 1945 when Europe rejoiced at the end of 6 years of bloody conflict.  The current crisis been called the invisible war but really there is no comparison between what we are currently going through and what that great generation went through.

My grandad, who I never knew, fought in Burma for most of the war came home and went back to work as a builder.  He hadn’t seen my dad for 7 years and never ever spoke about the war.    The current lockdown is in week 7, I’ve not been able to give my mum a cuddle but I’ve Whats APP’d her, and it’s likely to last for another few weeks.     We struggled at the shops for a few weeks, remember the toilet roll search,  rationing in WWII lasted for 14 years.  We worry about the WiFi going down, they worried about buzz bombs.

Now I’m not in any way down playing the significance of the current situation but searching for context on such a significant anniversary.

 

Experienced investors know that the stock market turns up, often explosively, when the situation appears to be at its worst.   That was true during the darkest days of World War II.

The U.S. had just gone through the Great Depression, the worst and longest economic downturn of the 20th century.  The stock market crashed Oct. 29, 1929, as the Dow Jones industrial average lost nearly half its value in a few weeks and continued sinking for months.  By 1933, the unemployment rate stood at nearly 25%. A second downturn in the economy took the market down again in 1937. By 1939, the unemployment rate was still 17%.

Germany invaded Poland on Sept. 1, 1939, launching WWII in Europe. At first, the Dow didn’t react much. Many people expected the U.S. to stay out. But when Hitler invaded France in May 1940, the market was heavily hit. Over an eight-day period, it fell 23%. It rallied after that, but the worst was yet to come.  The market was already in a serious decline, which had begun in the summer of 1941, when the Japanese attacked Pearl Harbor on Sunday, Dec. 7.  The Dow hit its lowest level since 1929.

Then the market turned. There seems to have been no single event that triggered it.

It was, perhaps, the realisation among investors that the U.S. was fully mobilising for war and would eventually win. The Federal Reserve dropped interest rates to nearly zero.

On May 7, 1942, the Dow rose 97.77, a gain of 1.1%, that rally lasted for 7 days and additional high-volume days followed and that was the beginning of a bull market that carried the Dow up 130% in four years.

 

Today’s market isn’t waiting for a superpower to enter the war but for a group of scientists to find an antibody or vaccine.  It’s waiting for the workforce to return, for lockdown to end, for life as we know it to return but there is an acceptance that life will be different.

The last week saw considerable gains in the first part of the week only for losses to be made as economic data was released and markets reduced on the back of results.  These results weren’t a surprise so by the beginning of this week the markets had turned green once more.

Economic data will likely be at the centre of analyst projections for the considerable future so expect volatility to remain.  Tensions with China and almost all global communities are high so this is having an impact and again this is likely to continue.

Oil prices have fallen and the sector faces tough times, airlines are obviously struggling, retail is struggling, business is struggling but like before the market will turn and there will be no single event that triggered it.

Now is a time for planning, for considering what you want, what your priorities are, what’s important, it’s why your views are long term, it’s why you invest, it’s why you sought out a financial adviser in the first instance.

As the end of the current tunnel becomes visible, it’s time to take control, to reset, refocus and react.

On VE Day Churchill said “We may allow ourselves a brief period of rejoicing but let us not forget for a moment the toil and efforts that lie ahead.”

This rings as true today as things slowly improve, there really is no comparison between the two events but when we emerge victorious let’s make sure we’re ready.  So get in touch and we’ll review your situation, re-assess priorities and prepare ourselves for the journey ahead.

Stay safe