It has been 84 days since lockdown in the UK was announced in which we have seen a period of great change and an immediate shift to our lifestyles. We have seen just over a quarter of the UK‘s working population supported by the Government’s furlough scheme with its estimated cost currently sitting at £19.6bn. As non-essential businesses begin to re-open their doors today, we appear to be getting closer to a state of normality. Boris Johnson has suggested that the two-metre social distancing rule could be relaxed as the hospitality sector prepares to reopen from 4th July.
In the last week, market volatility has been very high as the markets have tried to price in a quick return to normality. However, UK GDP fell by a record 20.4% in April as lockdown has paralysed the economy and halted businesses from functioning. The markets were quick to react to this data release as the FTSE All-Share fell 3.82% on Thursday, its biggest daily drop since the market sell-off, back in March. In simple economic terms, consumption has been the biggest component of GDP to be affected, with primary spending restricted to the groceries & e-commerce sectors.
Equity markets are typically driven by company fundamentals, forward cash flow estimates and forecasted earnings. In the current market, there is low visibility in these metrics, and so valuations are currently distorted. Previous recessions have followed a V-shaped recovery however, the markets continue to disseminate new economic data and the expectation is that we are likely to see more of a W-shaped recovery. Volatility is expected to continue in the interim as the market is displaying bunny-market characteristics as share prices hop up and down.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
Jon Doyle is Founder and Financial Planner at Juniper Wealth Management. Advising clients since 2008 he has guided clients through good time, bad times and the ugly. With a clear vision on how advice should be delivered and strong opinions on how we should be investing money in order to live the life we want to live free from money worry.