8th April 2020

‘The Greatest Fear is that of the Market Going Up and Not Participating in the Rise Rather Than The Market Going Down’

This is an article from Brewin Dolphin regarding the markets and the fear and greed index. The markets have rallied a little in the last few days, but the death rate shows no sign of abating at the moment.

It is important to understand what drives markets. Markets are driven by the twin impulses of Fear and Greed – basic instincts that make normally rational investors act irrationally. CNN have run for many years the “Fear & Greed Index” which seeks to measure where the investment world lies between these two extremes.










As you can see, whilst we are still in ‘Fear’ territory, the positive news is that sentiment has improved from a month ago.

When the last comes first

Because of the rapid onset of COVID-19, from a developed world perspective it is the US, where ironically the virus landed last, that we see the first clear economic impact of the virus. This reflects the timeliness of the US data but also quirks of the policy response. European policymakers have focused on job protection while US policymakers have focused on income protection. While UK unemployment rates will rise quickly (7% based upon universal credit applications made so far), they will stay well below the levels of unemployment in the US.

First wave. But what about the second?

With Boris Johnson seeking medical attention in hospital for his COVID-19 symptoms, Foreign Secretary Dominic Raab has been asked to deputise for the PM. However, the main controversy is whether we are, or are not, seeing rates of infection in the UK topping out. Both Spain and Italy have seen the rates at which daily deaths increase slowing whilst China is reporting zero daily deaths from COVID-19. Deaths are a delayed but more reliable indicator.

Riding out this first wave of the crisis is the current priority for everyone, discerning what the market expects in terms of a second or subsequent waves is another major risk.

How different will things be once the lockdown is lifted?
We can’t be sure, but the potential is there for:

  1. Healthcare capacity to have been increased.
  2. For more testing of both cases, but potentially antibodies which might greatly ease the required lockdown and isolation measures.
  3. More testing would help policymakers to understand what kind of herd immunity has been developed.
  4. There will be more knowledge of what has and has not been effective in halting the spread of the virus. How, for example has Sweden fared without imposing a lockdown? Are school lockdowns necessary?
  5. Additional time to study treatments such as the four being trialled globally including Remdesivir, and Chloroquine.

Monthly asset allocation view

The outlook is clearly uncertain, but the challenges are in full view and are being met head on by a powerful policy response. We believe the panic phase of the crisis has passed, and markets are functioning normally. In our view, the market is not fazed by horrific economic news, and expectations have been calibrated appropriately. Therefore, the risks remain more skewed to the upside than the downside over a reasonable time frame.

We have increased our exposure to ex Japan stocks at the expense of commodity producing emerging markets. The latter will benefit from a weakening of the US dollar as risk appetite rises, but we remain exposed until that happens. Furthermore, when business reopens, capital investment seems likely to be a lower priority than repaying creditors. We also raised our exposure to UK equities at the expense of European equities. That reflected the deep discount which UK asset had fallen to.


Capital and income from it is at risk. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Investment values may increase or decrease as a result of currency fluctuations. The information contained in this document is believed to be reliable and accurate, but without further investigation cannnot be warranted as to accuracy and completeness.


Stay safe and healthy.

Phil J McGovern FPFS