Has the dust of COVID-19 settled yet?
Well, what a couple of months March and April turned out to be.
Thankfully, the end of April and the beginning of May has brought about a significant downturn in active COVID-19 cases, the gradual easing of social restrictions and share markets beginning the road to recovery, so it is fair to ask – Is the worst of this behind us? Are we on the road to recovery?
When it comes to COVID-19, I think it is right to say the worst seems to be behind us. Around the world, it seems that the measures that were put in place to slow the spread of the disease have been successful in reducing infections and deaths. This is news to be celebrated!
As for the economic impacts of the measures implemented to limit the impact, such as business shut-downs, over production of oil and the government debt needed to fund stimulus packages, I am not convinced that we have yet seen the full impact, economically, of this.
I truly hope we have, but again, I am not convinced.
It may not be all bad, one thing that fills me with confidence is that financial markets are smart. They adhere to the efficient market hypothesis, meaning that their values and prices already reflect all known and available information. This can be part of the reason for such a strong market decline in February and March, as the markets ‘priced in’ the expected infection and mortality rate of COVID-19.
You may recall that the expectations were bleak.
However, as the social distancing measures began to take effect and rates of infection and mortality slowed, markets began to see a light at the end of the tunnel.
This ‘light’ caused the ASX200 index to increase by 8.8% for the month of April. I also believe it was this ‘light’ that caused the S&P500 index in America to have its best month in 30 years (increasing by 12.68% for the month of April), at the same time that 20 million Americans filed for unemployment insurance!
While that sounds insane, it appears that investors are looking beyond the current state and climate toward the light at the end of the tunnel.
Now with that in mind, and the recovery seemingly on the right track, the last thing I want to be is ‘doom and gloom’ or spark any further fear or stress. I sincerely hope that the measures that have been introduced are enough to kick the economy along into a gradual recovery and return to normality.
However, there is the chance that the economic impact of these extended shutdowns has been underestimated. There is the chance that people don’t just rush back to shops and restaurants once the restrictions ease and it is deemed safe to do so. If people do delay, then the impact could be harsh and wide reaching, and financial markets may need to again react and adjust accordingly.
What’s an additional consideration is that as the Australian Economy is so heavily dependent on imports and exports, even if we as a country can completely eradicate the virus and get back to “normal”, we are still dictated to, and impacted, in some capacity by our global trading partners.
On an individual level, we have no real control over how quickly and strongly both Australia and the rest of the world economically recover. However, as a collective, we have the option, dare I say even, obligation, to do everything we can to make a difference – once it is deemed safe and legal to do so.
When this time does come, I encourage everyone to do the best they can to get out and help our local businesses. Eat at local restaurants, shop in local retailers, take domestic holidays wherever practical and affordable.
One by one these decisions may not seem to make a difference, but if enough people make these decisions, we can impact and improve the broader economy as a whole and hopefully shorten the time it takes to get back to normal – whatever that may look like for you!
Of course, if you have any questions about this article, or what is happening in the world generally, I’d love to chat with you so please don’t hesitate to reach out!
Unless specifically indicated, the information contained in this email is general in nature and does
not take into account your personal situation. You should consider whether the information is
appropriate to your needs, and where appropriate, seek personal advice from a financial adviser.