In his latest update article, Casterbridge Wealth investment manager, Will de Baer, shares his thoughts on the recent market strength, what investors are focusing on and how the team have been positioned on client portfolios.
Covid-19 dramatic measures seem to be working…
These have been extraordinary times as we enter our fourth week of lockdown. Just as we are beginning to get used to this new way of life there looks to be light at the end of the tunnel; and we believe it is the end of the tunnel rather than a locomotive steaming towards us! The virus crisis hopefully appears to be approaching a peak across a number of nations as Europe looks set to gradually get back to normal. Providing a second infection wave is avoided the focus will now turn to exiting lock-down, repairing the economy and whether we can avoid a prolonged recession.
Markets pricing in best case scenario…
Global stock markets have rallied very hard since the lows marked in on 23rd March 2020. At the time of writing the FTSE 100 is up 13% from the lows and the US S&P 500 is up 27% from its low. It is uncertain how these markets will move forward in the short term, in terms of retesting the lows, consolidating at these levels or powering ahead. Clarity will emerge as we move closer to normality and the focus will turn to the economy and the shape of the recovery: ‘V’ Shaped for immediate rebound, ‘U’ shaped for a more gradual recovery or ‘L’ shaped for a prolonged flatline of economic growth at lower levels.
Tough numbers ahead…But…
There is little doubt that as companies begin to report their Q1 2020 financials, the numbers will be extreme to the negative. Expectations are for corporate casualties across those sectors hardest hit including retail, travel, leisure, oil and gas sectors to name a few. We believe that the monetary and fiscal policies put into place were well timed and enough to ensure we avoid a global depression. However, over the short term we will likely see a Darwinian evolution through many of these sectors as the measures put into place cannot bail out every company. We continue to ensure that we avoid exposure to those companies that will be hardest hit. Over the medium to long term there will be plenty of ‘corporate rebuilding’ as the eventual return to normalised demand will expose capacity shortage and opportunities for businesses to form and thrive again.
Portfolio positioning…
Your investment team at Casterbridge have maintained positions at a slight overweight to equities and have been watching the market rise very closely with a degree of scepticism. The aim is to maintain the overweight positioning through the market recovery and selectively reduce those holdings that we believe have become fully priced as and when the time comes.
And finally…
These strong market moves from the lows have been surprising to many in the investment community in terms of speed and breadth. There could well be bumps ahead as we enter earnings season; however, one must remember that the stock market is a forward-looking mechanism and is already looking out beyond the short-term economic pain.
IMPORTANT INFORMATION
This update is for information only and does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. The views and opinions within this update are those of Casterbridge Wealth at time of writing and may change without notice. They should not be viewed as indicating any guarantee of return from an investment managed by Casterbridge Wealth nor as advice of any nature. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.
