The pain of a recession may not hang around that long. Photo / Getty Images
The pain of a recession may not hang around that long. Photo / Getty Images
The outbreak has sent the world into periods of panic, with share markets plummeting in mid-March into bear market territory for the first time in over a decade, including the Dow Jones Industrial Average, the S&P 500 and the Nasdaq.
GDP data today all but confirmed that we are setfor the first recession since the Global Financial Crisis.
But don't surrender to despair entirely.
There are some encouraging signs this may be the shortest recession since WW2 - provided that GDP starts rising globally towards the end of the year.
While it'll take numerous industries months, and in some cases years to bounce back from the impact of COVID-19, encouragingly, the stock market has already recovered a significant portion of those earlier losses.
Despite consumer entertainment, tourism, banks and oil stocks all falling out of favour with investors, the market has been lifted by technology stocks, as many tech companies benefited from the lockdown and the commensurate uplift in the need for digital solutions.
Our local NZX is now also up 33 per cent off the lows experienced in March and is performing more positively, driven in large part by weighted stocks such as A2 Milk and Fisher and Paykel Healthcare.
Domestic accommodation and food services, retail and wholesale trade, construction and non-food manufacturing industries have all been decimated over the last few months.
The only reference point investors have for the first 100 days of trading volatility here in New Zealand is the 2008 Global Financial Crisis.
Understandably, many companies have withdrawn guidance for 2020, and effectively been given a lenient pass card by investors on their 2020 earnings.
As we enter a post-lockdown world both here and overseas, one of the key questions on many Kiwi investors' minds is – what can we expect in the next 100 days?
Chris Smith is the general manager at CMC Markets NZ. Photo / Supplied
The true economic impact of COVID-19 on our economy continues to unfold. And as the focus now shifts towards the growth agenda needed to emerge from this crisis, it's likely that the economic news flow will become worse in the coming weeks and months.
Off the back of consumers "revenge spending" after lockdown, coupled with the COVID-19 policy stimulus from governments and central banks, many commentators are arguing that the market has gotten too far ahead of itself, too quickly.
In addition, they are cautioning against getting overly excited by the surge in retail investor activity.
Conversely, some companies have benefitted through this period, and could hint toward us witnessing the early stages of the next bull market period.
The economic data for this crisis has been and will continue to be very weak, with global GDP estimated to have contracted by 16 per cent in the three months from mid-January to mid-April.
But investors experienced in market crashes know that these wild rollercoasters of volatility never last. When we see capitulation of forced selling, markets settle down into normal historical patterns.
The recovery and rebound is the major question and one that is hard to answer - particularly in a major health crisis such as the one we're currently experiencing.
With volatility still on track to mirror the GFC, there will undoubtedly be plenty of opportunities for investors in the weeks and months ahead.
Earnings seasons and the major New Zealand and United States elections will also ensure these next 100 trading days continue to be equally fascinating. And while it can be hard to do, particularly given how tumultuous this year has been, blocking out some of the noise can often be the best course of action for long-term investors.
- Chris Smith is the general manager at CMC Markets NZ.
