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Will markets continue to rally in 2020?
Markets are widely tipped to continue to be volatile in the second half of the calendar year, following a sell-off in March and a recovery in the second quarter, according to three experts.
Will markets continue to rally in 2020?
Markets are widely tipped to continue to be volatile in the second half of the calendar year, following a sell-off in March and a recovery in the second quarter, according to three experts.
During a recent Bloomberg seminar, Bell Asset Management chief investment officer Ned Bell, Fidelity international’s portfolio manager Kate Howitt and Alphinity investment management’s portfolio manager Niki Thomas discussed the state of the market.
The trio noted that the market will remain unpredictable, with new data, government stimulus and the outcome of the health crisis having a major impact on the direction of the market.
“The most critical piece is: will fiscal and monetary policy remain very supportive for markets?” Ms Thomas said.
“My expectation is that will be the case, and we will see more fiscal stimulus despite some people’s view it is already quite big.”
“So, that should be supportive for markets. But whether they go higher from here will depend on the stock specifics from here,” she said.
Ms Howitt agreed with Ms Thomas, stating that picking the direction over the short term is something she doesn’t have an edge on while liquidity has been a tailwind for investors.
“There is clearly a determination from policymakers around the world to do what it takes. While the policy might not always hit the mark, but I think the intention is there, and policymakers will continue to be supportive,” Ms Howitt said.
She noted that the support will have a consequence with other asset classes becoming less attractive for investors.
“When you consider the impact of the policy is to make bonds and cash look less attractive, so there is almost a herding into equities,” she said.
Mr Bell believes the direction of shares could largely be the result of company information that will show the impact of the COVID-19 pandemic.
“A big trigger point is going to be as we come into the second quarter earning results that will start coming out in the next couple of weeks,” Mr Bell said.
He believes the picture will become clearer as the impact of a full COVID-19 on companies balance sheets and future performance is revealed to investors.
“My biggest concern is around 2021 earning estimates. I think there is quite a bit of downside there,” Mr Bell said.
“I think that might start to temper the enthusiasm that we’ve seen more recently, after the S&P 500 had its strongest quarter in almost 20 years.”
The investment manager noted this could be at the expense of investors who have bought on the belief of a strong recovery.
“So, the markets are pricing in almost no risk. What we are seeing on the ground level in the reopening of the US economy is not going as well as we would like.”
“I think the recovery is going to push out further into next year. So there is definitely risk there, and I think we will be in a more volatile second half [of the year],” Mr Bell concluded.
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