Cast your mind back to Thursday, January 2, the first trading day of the new year, and there was plenty about which traders could worry. Some feared that, after years of growth, the world was overdue a recession. Others were concerned by the prospect of a bitter US presidential election campaign. Structural problems in the eurozone remained a perennial concern.
And, of course, there was the coronavirus outbreak, then considered almost entirely a problem for China. Here, anxiety related mainly to its effect on the world’s second-largest economy rather than its potential to wreak havoc in the developed world.
Four months on, and the China angle is largely forgotten other than as an aspect of the blame game raging around the pandemic. Instead, the focus is on the economic carnage being wrought in Europe and America by the lockdown measures imposed to try to control the spread of the coronavirus.
Signs of market recovery
This devastation has been reflected in share prices from Wall Street to Tokyo via London and Frankfurt. There has been huge destruction of value in terms of market capitalisations. But the stock market outlook next week suggests that, as with infection rates in key countries, we may be over the worst.
London’s FTSE 100 blue-chip index is a good illustration of this. On the morning of April 30, the last trading day of the month, it was down a little, off 0.15 per cent at 6,105.91. A month earlier, on March 30, it stood at 5,563.74, while three months earlier, on January 30, it had been up at 7,381.96.
Within those three months, it had touched a high of 7,534.37 on February 12, but then went into decline, dropping below 6,000 on March 9. Three downward movements, each ending lower than the last, were seen on March 12, March 16 and March 18, taking the FTSE 100 to a three-month low of 4,993.89 on March 23.
Since then, there have been signs of recovery, with the index back above the psychologically important 6,000 level on April 29.
Trade UK 100 - UK100 CFD
Emerging from the stock market crash
A similar pattern has been seen in Frankfurt, where the DAX index has staged something of a comeback. On the morning of April 30, it was 0.05 per cent up at 11,113.62. One month earlier, it had traded at 9,815.97 on March 30, and three months back on January 30, it had stood at 13,157.12.
Its high point during the past three months was reached on February 19, at 13,789.00, while the low was seen on March 18, at 8,441.71. Here, the key support level has been 11,000, and it was back above this point on April 29.
Across the Atlantic, the Dow Jones index closed on April 29 up 2.21 per cent at 24,633.86. A month earlier, on March 30, it traded at 22,327.48 and three months earlier, on January 30, it closed at 28,859.44.
During these three months, its peak was seen on February 12, at 29,551.42 and its low point occurred on March 23, at 18,591.93. For the Dow, the important level seems to be 24,000, which it passed on the way up on April 27.
Tokyo’s Nikkei 225 index closed up 2.14 per cent on April 30 at 20,193.69, having traded at 19.084.97 a month earlier, on March 30. Three months earlier, on January 30, the Nikkei closed at 22,977.75. The high point was hit on February 6, at 23,873.60, while the three-month low was seen on March 19, at 16,552.83.
The support level for the Nikkei seems to be 20,000, and it went back above this point on April 30.
Overall, it looks as if key benchmarks are emerging from the wreckage of early 2020 and that the stock market forecast for next week is nowhere near as gloomy as may have been expected until recently. But on the face of it, this apparent renewed optimism may be surprising.
Backing a stock market upswing
True, Italy, Spain and Denmark have started to ease coronavirus restrictions, making possible a return to greater economic activity. But Germany is reimposing some measures, and Britain remains locked down, as do many US states. Indeed, the expected easing of the UK’s lockdown regime on the return to work of Prime Minister Boris Johnson, who had previously been hospitalised with the coronavirus, did not happen.
Perhaps, in part, the partial stock-price recovery can be explained by the “bad news is good news” paradox seen in the years since the 2008 financial crisis, when shares seemed buoyed by poor economic data because this was seen as a sign that central banks would keep pumping money into their economies, with consequent inflation of asset values.
On April 29, International Monetary Fund managing director Kristalina Georgieva predicted further stimulus measures, saying:
More positively, it could be that markets are already backing an economic upswing that they see on the other side of the coronavirus crisis, it being a proud boast of many players that equity prices are a leading indicator, telling us where we are going, not where we have been.
At present, however, this upswing is merely something rumoured to be in the offing. As businessman and adviser to UK Prime Minister Margaret Thatcher the late Sir John Hoskyns once put it: “Rumour may not always be entirely accurate, but at least it is early.”