Perspective

Webinar: with the S&P back up by 37%, are stock markets "ahead of themselves"?


"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

SP_drawdown_2020.png

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.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 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. For your security, communications may be taped and monitored. 

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