Economies are now emerging from lockdown restrictions. The pace of normalisation is both patchy and ponderous; clouded by legacy propaganda and heightened political risk. Nevertheless, the direction of travel for now is only one-way: having witnessed unprecedented falls in business activity, near-term recovery is now inevitable. Importantly, this is a different debate than any longer-term implications, which in any case is subject to greater forecasting uncertainty.
The initial stages of the stock market recovery focused on the “stay-at-home” winners. The choreography now compels that market leadership rotates to stocks where recovery from lock-down at knock-down stock prices becomes the new dominant narrative. This means that there will likely be a high degree of short-term reversion to the mean in terms of individual stock performance. In this “reflationary” stage of the economic cycle, downtrodden “value” which nowadays equates to “cyclicality” should see a strong bounce relative to longer duration “growth” stocks. It is also worth remembering that European stock indices shave a strong “value” bias and may therefore now catch-up with global benchmarks.
We recently gave an interview to the Mail on Sunday’s “This is Money” styled “What the fund that beat the crash is buying now?”. With greater visibility over the near-term direction of travel it is now time to more firmly grasp the recovery trade nettle: