Some sectors benefit from the new world we live in
AS we see increasing signs that we are slowly moving out of lockdown, our thoughts naturally turn to how long it will take to get back to normal and indeed whether we will face a new normal as some things may have changed for ever.
Working from home has been a major change and one which seems likely to persist to some extent for a long time to come and we may well see a permanent change in working practices in a number of different businesses.
Markets have bounced off their lows with a marked variation between the US and Europe: the Euro Stoxx index is down 18.56 per cent since the beginning of the year and the FTSE 100 is down a similar amount (19.43 per cent) whereas the Dow Jones Industrial Average is down 11.06, per cent the S&P 500 by 5.77 per cent and the Nasdaq (which has a very heavy weighting in technology stocks) is actually up by 5.76 per cent.
Clearly some technology stocks have benefitted from lockdown, with increased demand for online services, but even so the US markets do appear to be discounting a strong recovery in the economy.
There has been a great deal of speculation about what shape the recovery will take, varying from a “V” shape to a “U” shape and even a dismal “L” shape. Much encouragement has been taken from the unprecedented action taken by governments and central banks to mitigate the impact of lockdown and this is adding to the optimism that recovery will be swift.
Add to this the forthcoming US presidential election in the autumn which means Mr Trump will be anxious to see a healthy economy to aid his chances of re-election.
The statistics so far (which are by their nature retrospective) do not bear out a swift recovery: US unemployment stands at 20 per cent, a frightening statistic.
Many market observers are looking to Asia to see the pace and scale of recovery as they are clearly ahead of the west in the pandemic, in particular China, but so far there are few signs of a marked pick-up in the overall pace of economic growth.
The Japanese market is now just 6.86 per cent down on the year, but the picture in Hong Kong is muddied by the renewed unrest as China seeks to impose changes. The Hang Seng index is down 15.68 per cent since the beginning of 2020.
It is notable that other topics are starting to creep into the news: Brexit and the possibility of an extension of the transition period, for example, the desperate unrest in the US as well as the problems in Hong Kong (and possibly Taiwan) already touched on.
At this stage we do not know how quickly the global economy will bounce back, there are too many uncertainties and human behaviour is always hard to predict.
It is very much a stock picker's market: there are some sectors which will clearly need a lot longer to see recovery and others that could benefit from the new world we live in.
:: Cathy Dixon is a partner at the Belfast office of Cunningham Coates Stockbrokers. This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise.