Beware when the market and the economy are out of sync
Following its one-month 36 per cent decline from peak (20 February 2020) to its low (23 March 2020), the ASX200 has bounced 20 per cent. That’s a return most investors would be happy with over a year. The question is whether such optimism is warranted.
The bounce reflects the relatively simplistic and arguably misguided idea that peak virus infections and deaths will pass quickly and that central bank interventions in the bond market, which cheapen credit to businesses and households, and government stimulus such as wage subsidisation, will subsequently trigger a surging return to prosperity.
But it is important to note that, prior to the outbreak, economic growth was already faltering. Growth in China was slowing, a recession in Europe was widely predicted and US job availability, employment and wages were sliding.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Michael S
:
Given the current dire economic situation (not to mention health) it’s hard to believe that there’s enough optimism around that the All Ords is now at the same level it was just 17 months ago. It would seem hope springs eternal in investors (or should that be speculators?)…. until it doesn’t.
Roger Montgomery
:
Nice articulated Michael.
investment.pushbiker
:
Cramer just said people who don’t own corona virus effected stocks will wish they had. he is very confident that J&J are close to getting a vaccine.
Roger Montgomery
:
Thanks
John
:
Couple of things
1) The difficulty here is that optimism leads to a loosening of restrictions that cause more cases which causes more restrictions.
2) I am not sure if a vaccine can be found (this is different than a flu virus and in any case it is mutating)
3) I am not even sure about developing immunity to this virus might be able to lie dormant and then reappear or might be able to reinfect individuals after a period of time elapses.
4) When I look at who the optimists and the pessimists the optimists don’t strike me as people who understand what they are talking about both in relation to biological and economic matters. Meanwhile some of the pessimists are making some sense – Roubini, Keen and yourself Roger.
Ric Jay
:
Thanks Roger, I’m more inclined to subscribe to your views (and those of the always enlightening Ray Dahlio: https://www.youtube.com/watch?v=yrxYhv2O3wU ) than those of Michael Knox, for instance, who followed you on Switzer with the brave prediction that “it’ll all be over by Christmas”.