Quo vadis financial markets?

Since weeks we hear and read new numbers about the spreading of the virus SARS-CoV-2 on a daily basis and we have to live with the restrictions which come along with this exceptional situation. Financial markets showed a strong reaction to the pandemic end of February this year. This triggered a sharp price decline at the global stock exchanges. Nevertheless, by end of March the prices recovered already by 60 % from the initial correction. Brave investors were able to buy securities with attractive prices during this time and profit from this market situation.

The question remains: was this just a bear-market rally or was it a V-shaped countermovement well-known in chart analysis?

The SARS-CoV-2 crisis will most likely last for quite some time still, as to fully recover back to normality some vaccine or medication is needed. Until then restrictions and safety measures will be a part of our daily life and even tough, we see first since of a restart the lockdown is not lifted in total yet. Many businesses are not fully operational yet and their doors are still closed. Therefore, the full economical impact of the lockdown still remains impossible to be estimated.

Acknowledged analysts stay critical. Within their reports with headlines like “Does the stock market suffer from a pathological loss of reality?” or «4 Reasons Why The Market Will Dive AGAIN» they argue, why the risk of a further correction at the stock markets is likely. Only few analysts represent a more positive view and believe, that the worst of the SARS-CoV-2 crisis is already over.

The corporate and economical figures for the first quarter 2020 are based on the good months of January and February. The following weeks in March were already influenced by the implementation Corona safety measures. These measures will have an even bigger impact on the figures of the second quarter.

As mentioned already, a further correction at the financial markets is to be expected. If this event occurs, it is possible that one will witness as low price levels as seen previously in March. Hence, we at Zehenter and Partner Invest AG have hedged parts of our equity positions at the price levels from beginning of May. In the case, when no correction the investor solely forgoes the not realised gains from a further market recovery. This equity hedge will be dissolved as soon as a solid market recovery is visible.

Until either event happens, we continue watching the markets closely on a daily basis and remain ready to adjust our positioning whenever necessary.