“Get ready for the Covid-19 global recession”, says Larry Elliott in The Guardian. With mass gatherings prohibited, borders closing and countries in lockdown the world economy is in line for a deep slump. On Sunday central banks in Europe, Asia and North America announced coordinated action to prevent liquidity from drying up. America’s Federal Reserve slashed interest rates to nearly zero and pledged $700bn in new asset purchases (with printed money).
A terrifying plunge
These measures failed to reverse the market rout. On Monday both the Dow Jones and S&P 500 recorded their biggest one-day falls in over 30 years, as both tumbled more than 12% in a single day. The VIX measure of market volatility, the so-called “fear gauge”, topped a record set in 2008 when it closed on Monday.
“The S&P 500 hit a record high just over one month ago,” notes Courtenay Brown on Axios. The index has since tumbled 29% and entered a bear market. The FTSE 100 and Eurostoxx 600 indices are both down one-third since the start of the year.
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“Most panics are the result of a pre-existing mania,” says Jeremy Warner in The Daily Telegraph, but “this one is essentially an act of God”. Compounding the virus fallout has been investors’ concern about a series of ignorant statements from Donald Trump. The Fed’s swift action, however, has probably prevented a 1929-style rout on Wall Street. “Mr Trump owes more thanks than he knows to the Fed chairman, Jay Powell.”
Money cannot cure a pandemic
But the flood of easy money has yet to put a floor under markets, says Gillian Tett in the Financial Times. US stocks have spent a decade like a drug addict “hooked on monetary heroin”; every wobble has been met with a “new monetary fix”. Now the financial morphine has ceased to work.
That is because this is not a repeat of the financial crisis, says Niall Ferguson in The Sunday Times. It is a “public health emergency with financial symptoms”. To expect monetary and fiscal stimulus to halt a pandemic’s fallout is akin to tackling the collapse of Lehman Brothers with a “quarantine of Wall Street”. This pandemic is both a demand and a supply shock, says Elliot; monetary policy only tends to work on the former kind. Cheaper credit won’t make people go out and spend when the shops are closed and supply chains buckle. Paul Dales of Capital Economics says that the second-quarter hit to UK GDP could be 5%. What’s more, having “imposed bans and restrictions, governments and private-sector bodies will be cautious about removing them”. Expect a slow recovery. “[Extreme]situations create opportunities,” says John Authers on Bloomberg. But they “also offer the chance to lose ungodly sums of money”. The human impulse to “do something – anything” in a crisis is strong, but amid such volatility and uncertainty putting money into the market now is little more than gambling. In the words of legendary US investor Jack Bogle: “Don’t do something, stand there!”
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Should you invest in UK equities?The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
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State pension errors: DWP urged to check for mistakes among divorced peopleFormer pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
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Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
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Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
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Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
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Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
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Best investing appsWe round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
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The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
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Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
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UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
