We start our second week of lockdown in the UK much as we were 7 days ago, the news agenda is inevitably dominated by the global pandemic with regular updates in the numbers of new cases; most significantly our own Prime Minister, and of course the mounting death toll in the UK and across the world.
There is clear divergence in the response of governments across the world but at present it is difficult to judge the efficacy of these different approaches, for now the spread and the fear of spread continues almost unabated.
Nevertheless, Jeremy Podger from Fidelity has attempted to apply some structure to the events we see unfolding and divides the pandemic into 3 distinct phases: Escalation, Consolidation and Recovery.
Clearly we are still in the Escalation phase causing wild share price movement, rapid falls and extreme volatility although I suspect we are moving to the end of this stage, volatility is reducing and the FTSE100 has climbed in excess of 10% in a week as the immediate winners, losers and the resilient cash rich survivors are identified.
Many stocks have been oversold in a frenzy of selling, utilities and healthcare providers have fallen along with the more cyclical stocks one would expect to see suffer.
This would imply we are moving into the Consolidation phase as the true cost of the crisis can be evaluated, the genuine corporate victims are eliminated and separated from the majority of companies that maintain strong balance sheets and have a long term future.
Who knows how long this Consolidation phase will last or even if we are genuinely there yet but as markets settle as they have done now for the past 2 weeks I am increasingly convinced that the long way back for global stock markets and our clients invested assets has already started.
There may yet be bumps in the road but long before we hit the Recovery phase the best stock picking fund managers will be identifying and hopefully buying those recovery stocks you should be invested in.
The sad truth of equity investment is that this is a long game and it has never been an easy one way bet to riches, it undoubtedly works, and the rules of this game have not changed.
As painful as the past few weeks have been for investors do not lose sight of the fact that global stock markets are 25% cheaper than they were at Christmas and it is highly likely the peak of the pandemic will be behind us in a matter of months.
This can only lead us to a single conclusion; starting today it is overwhelmingly likely that your investments will be higher in 6 months than they are now.
I will leave you with a graph sent to me this morning from my colleague, Nick Temple-McCune, that he received from Morningstar assessing the effects of exiting the global stock market at the bottom of the banking crisis crash in 2008 and also the cost of delay of re-entering the market 12 months later:
Take care and stay safe, Matthew
Matthew Pescott Frost