The stock markets have recovered, so is the panic over? | Company

AAt the end of the first quarter of the year, stock market investors count their losses. The FTSE 100 index has fallen 25% since the start of the year, its worst single quarter since 1987. The financial crisis of 2008, around the collapse of Lehman Brothers, lasted for several quarters and should still be considered more severe. But whatever your criteria, 2020 has so far been brutal for equity investors, which includes most people with a pension plan.

Stay focused on the past two weeks, however, and the picture looks different. You could almost believe that normal life has returned. The FTSE 100 as a whole has increased in seven of the last nine trading days and eight of the last twelve. And, if you’ve caught the low, congratulations: you could have made about 16% in three days.

Reasons for optimism? It is far too early to say, of course. All that can be concluded from the bursting of relative calm is that investors like the responses of policy makers so far. A fortnight ago, their big fear was a credit crisis and the first eddies were definitely present. Central banks (at least for now) seemed to have averted this risk by flooding the financial system with liquidity and all that was needed. This was the time when the maximum panic passed. Even the rush to paradise US dollars has eased.

Meanwhile, the economic foreclosure of Western governments measures everything from the $ 2 billion stimulus package in the United States to British Chancellor Rishi Sunaks with $ 330 billion in loans and the 80% leave scheme in the United Kingdom. in the form of recovery. Investors have even learned to like blockages: they are talking about the same story that, once the spread of the virus is contained, the world economy will experience pent-up demand by the end of the year.

The script could indeed develop this way, but some heroic assumptions are made. The theory of rapid rebound is based on the idea that blockages will last only two or three months, at most, without the need to reimpose them.

Maybe that will be right but, remember, the investment consensus eight weeks ago was that Covid-19 was mainly an exclusively Chinese affair and would end quickly. Projections have been made to appear very stupid very quickly in this crisis. This is why there is not much to read in the better-than-expected Tuesday’s survey of business confidence in China: unreliable data does not imply a lasting rebound.

We also don’t know if governments support the packages, even if they seemed huge at the announcement, will be enough. Look at the calls for additional help already piling up at the UK door: even business owners, who should be in a good position to take some pressure, are begging the state to cover their rental income shortfalls .

What we know now is that there will be a big bill at the end. The UK debt management office announced Tuesday that it will raise $ 45 billion in April alone through public debt sales, a staggering amount that compares to $ 9.5 billion the same month last year. In the coming fiscal year, the UK budget deficit could triple to 200 billion, or 10% of GDP, said the tax research institute last week. Meanwhile, companies, many of which were too indebted at the outset, will carry even higher levels. All of this drags on investment.

The stock markets can, of course, look through these worries they are looking around the corner. All the same, it is hard to believe that this bear market will be quickly banned. The stuttering of progress, punctuated by frequent disappointments, feels as much as one can reasonably expect from actions for a while. In the sentence, we heard a lot of clinicians these days, it’s a marathon not a sprint.