We find ourselves in unprecedented times, a time of uncertainty and concern, first and foremost about loved ones. At this time, we need to ensure we look after ourselves and not take any undue personal risks. If we do this, we should be able to suppress the virus and speed up the process of getting ‘back to normal’, whatever that may be.
Jarrovian – Business As Normal
At Jarrovian, we would like to reassure you that we are prepared to support both our colleagues and clients during this time to ensure that your current requirements continue to be met.
In line with Government guidelines we have adopted a work from home policy with all employees able to do their role from home. Where annual review meetings have been booked, these will now take place via a conference call which we will arrange and invite you to.
“Events dear boy events”
When Harold Macmillan became British PM, he was asked what would determine his government’s course. He replied, “events dear boy, events”, knowing that he had become PM due to the Suez crisis. These words still ring true today and no doubt seem particularly apt for the Johnson administration.
The definition of a bear market is generally agreed to be a fall of around 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Given we have experienced falls in excess of 30%, we are clearly in a bear market.
Bear markets come in different shapes and sizes, with not all bear markets being the same. Some are called ‘event driven bear markets’ where external shock can create rapid share price falls. Catalysts could be war (US market 1990, Iraq invades Kuwait), an oil price shock (UK market 1973/74) or the Sovereign debt default fear (Europe 2010). This often provides a sharp shock to an established bull market and can produce sudden sharp falls. What makes this unusual as an event driven bear market, is the geographical scope (no country is immune from either the virus or the economic consequences) and the speed and scale of the economic downturn, as well as the fiscal and monetary policy reaction – everything about this event seems bigger.
There are two other types of bear market; the ‘cyclical’ – a kind of end of economic cycle unwind of investor euphoria; and the ‘structural – longer in duration and more damaging. These are usually created by imbalances and financial bubbles, policy errors and deflation. The long bear market of 1929-1937 is the best example of this.
Goldman Sachs have looked back at bear markets since 1835, dividing bear markets into these 3 categories.
The good news is that event driven bear markets typically regain their previous levels within 15 months. These are ‘V’ shaped recoveries based on the shock dissipating, successful policy response and/or markets being able to see through the short-term pain. Event driven bear markets are all different, but they have usually been market driven, so a monetary and fiscal response has been effective. Here we a facing a non-monetary shock, but with unprecedented economic consequence and a far more challenging political and economic puzzle to solve, where the cutting of interest rates to historic lows are not sufficient on their own to restore market confidence.
Event driven bear markets tend to recover their losses quickly. It is possible for this to be like the vast majority of event driven bear markets, but that is not guaranteed.
Once the bear market has exhausted itself, significant investment opportunities will present themselves. This will be even more the case here, given the profound levels of economic and industry disruption taking place and the huge levels of uncertainty around outcomes. Markets will have experienced significant dislocations from the distortions created by the virus and its impact. Herein lies the opportunity, where the right selection of active managers can add value, in the same way that the right selection can help preserve value during the market correction. This is where the correct geographical and thematic choices, which may include the use of the most appropriate passive funds can capture the value available. These opportunities will only present themselves to those who have stayed calm under pressure and true to their methodology.
For any visitors seeking financial planning advice in these turbulent times, we are very much here to help. Please call us on 0345 475 7500 or email us at firstname.lastname@example.org
Chris SalacinskiDirector & Financial Planner