Finance Explained

With lockdown still in place in many countries around the world, it may be hard to look to the future and feel optimistic about the prospects for the global economy. However, data from the World Bank (January 2021) states that the global economy is expected to grow by 4% in 2021. This forecast comes with the assumption that the Covid-19 vaccine rollout is as expected. It is worth reviewing this data alongside the decrease in the global economy in 2020 which showed a contraction of 4.3% (World Bank, January 2021). This means that the overall size of the global economy would remain slightly under its previous levels, albeit on a more positive trajectory.  The World Bank take the view that the contraction in the global economy was 'slightly less severe than previously projected' which was down to advanced economies been less badly hit than expected along with a 'more robust' recovery in China.  They do offer the caveat that should the vaccine rollout be delayed then they o...

2020 saw many records in the investment markets and the 10-year US Treasury yields were no exception as they saw record lows. If we look at the data over the last year in the chart below (source: CNBC), then the impact of Coronavirus from February 2020 is clear. A sharp dip into March 2020 and then a slow, steady recovery from August 2020, but not the same recovery to previous levels and beyond that we have seen in many of the stock markets.  Indeed, if we look at the longer term trends going all the way back to the 1980s, then 2020 saw record lows as per the chart below (source: CNBC). The chart also illustrates the longer term trend with a steady decline in the yields over the past forty years (the thought of a peak 15% yield back in the early 80s, where could you find that kind of yield these days!). Looking at the longer term trends you may believe that the yields cannot get much lower and then a continued steady recovery is the likely way forward.  But, as ever, in the cu...

There is no doubt that 2020 was a tumultuous year for investing as panic set into the markets and volatility continued for the rest of the year and into 2021.  But how does it compare with other great crashes from history? There is good or bad news when looking at the S&P 500, depending on your view of the market. Looking at the trends, the falls were some of the sharpest in history, but the recovery has been the quickest when compared to the most famous crashes in the market.  Specifically looking at the initial crash lows across the first 180 trading sessions:  Great Depression of 1929: the worst with a 40-45% drop Black Monday 1987: a 30-35% drop Dot-com crash 1999: a 10-15% drop Great Recession 2007: a 15-20% drop Coronavirus 2020: a 30-35% crash, but the fastest and sharpest drop of all So, taken in context the 2020 shock was the fastest and most dramatic, even if the Great Recession saw more gloom over the 180 trading sessions. In terms of the recovery, 2020 was...

What a year 2020 was for investing.  Record-breaking lows, recoveries, logic, panic and confusion all thrown together with fortunes made and lost. A pandemic, Brexit and a sometimes chaotic US Election made for a perfect storm in instability. But now the dust is settling which sectors fared best and worst and more importantly why?  Let's look at the UK in this article. Data from IG  from H1 2021 (Jan-July) shows the disparity between sectors in the FTSE All-Share: Sector                                    Average share price return Healthcare                          +5.1% Materials                                    -1.8% Information technology      -2.1% Utilities ...

There are no two ways about it - 2020 has been an incredibly turbulent year for the markets. A pandemic, a US election and an uncertain Brexit still looms large to cap the year. So, what approach should you take in the current situation? Markets - emotion and fundamentals Markets have both their fundamentals and a human-led emotional bias.  In terms of emotional bias, there is a tendency to overreact to both bad news and good news, hence the huge swings when the prospect of lockdown loomed and the huge spike when news of a vaccine broke even though the impact will be medium term at the least. There are contract investors who invest when the market suffers a huge dip and sell when the market is peaking. Of course, it's impossible to pick those peaks and troughs accurately.  While it may be tempting to keep all your money under your mattress in 2020, it is worth having a look at the history of markets and then to see the opportunities available. The history of markets strongly s...