Webinar: with the S&P back up by 37%, are stock markets "ahead of themselves"?
Stock markets have rallied strongly as investors anticipate a quick recovery from the pandemic. As lockdowns in Europe and the US come to an end, Chief Investment Officer Caspar Rock and Investment Director Ahmet Feridun share their views on markets and the economic outlook.
"Pandemics leave scars" says Caspar Rock, Cazenove Capital's Chief Investment Officer. "They alter the balance between savings and investment in an economy."
This could mean that coronavirus results in a "new normal" marked by subdued consumer and business spending, high levels of debt and persistent low interest rates.
It may also "supercharge" long-standing investment themes that we have been incorporating into portfolios in recent years:
- Rising healthcare spending as governments expand welfare provision for ageing populations
- Accelerated technological change
- Continued appeal of strong balance sheets and stable income streams
Stock markets "ahead of themselves"
Ahmet Feridun notes that the US stock market has rebounded much faster than it has after previous big drawdowns. This suggests investors are confident that coronavirus will be a "one-off shock event" rather than the start of "a more structural decline."
Ahmet believes equity investors are "looking through" this year's steep fall in earnings to a strong recovery next year. Consenus forecasts suggest that global earnings will be very slightly higher in 2021 compared to 2019.
However, other aspects of the market paint a more cautionary picture:
- UK dividends are expected to fall some 40% this year and are not expected to significantly recover over the next two years
- Government bond markets suggest low growth and low interest rates will persist for many years
- Corporate bond markets indicate relatively high levels of corporate distress ahead, potentially undermining the swift return to normality envisaged by equity markets
S&P500 performance in 2020
Source: Bloomberg, Cazenove Capital. As of 31 May 2020.
If you were unable to join this live webinar but would have liked to listen in and pose questions, more will be held in coming weeks. Please look out for invitations from your usual contact.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.