Market Outlook – 1 June 2020

With stockmarkets globally having rebounded strongly from the lows they reached in March, the question that all investors are now posing themselves is whether the recovery rally has further to go, or whether we will see a regression as the true economic impact of the COVID- 19 crisis hits home.

Most agree that the future shape of the recovery will depend on whether the pandemic can be brought completely under control.

In the light of the significant government stimulus that has taken place globally, stockmarkets are viewing a V shaped recovery as the most likely scenario, with a short recession and subsequent rebound. The amount of money that is being pumped into the financial system is without precedent and has ensured, to date, that businesses that would otherwise have gone bankrupt by now, have been able to keep trading and retain their employees.

What could clearly hamper this view of a quick recovery is if we see a second or third wave of outbreaks or the coronavirus lingering longer throughout the year which leads to a W shape recovery or even an L shape. Much of this will rest on greater use of testing, restricting movement, the use of existing drugs to treat the virus and the ultimate goal of a vaccine.

The recent news that there has been a second wave of cases in South Korea is a concern, especially given that South Korea did a much better job than most countries of containing the COVID-19 outbreak initially. If we see similar second wave outbreaks starting to occur in Europe and the US then this would likely lead to a swift change in sentiment and cause stockmarkets to head south again.

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